Colgate’s Growing Success o STRONG R MARKET LEADERSHIP o GREATER PROFITABILITY o THE POWER OF G OBAL TEAMWORK

Co~gate-Pa1mo1ive Company 1998 Annual Report ANOTHER YEAR OF STRONG PROGRESS

Contents Highlights

Highlights 1 Dollars in Millions Except Per Share Amounts 1998 1997 Change New Records in Profits, Worldwide Sales $8,971.6 $9,056.7 – .9% Good Unit Volume Growth Unit Volume +3.5% Colgate’s Growth Strategy 2 Gross Profit Margin 52.2% 50.7% + 1.5 Dear Colgate Shareholder 3 points Glossary of Terms 5 Earnings Before Interest & Taxes $1,423.0 $1,285.8 + 11% Colgate’s Growing Success Percent of Sales 15.9% 14.2% + 1.7 I. Stronger Market Leadership 6 points Building Number One Positions Net Income $ 848.6 $ 740.4 + 15% II. Greater Profitability 9 Percent of Sales 9.5% 8.2% + 1.3 Bringing Colgate’s Products to points Consumers Faster and More Efficiently Basic Earnings Per Share $ 2.81 $ 2.44 + 15% III. The Power of Global Teamwork 13 Dividends Paid Per Share $ 1.10 $ 1.06 + 4% 38,000 Colgate People Sharing Operating Cash Flow $1,178.8 $1,097.8 + 7% Across Borders Return on Capital 20.4% 18.0% + 2.4 Global Business Review 15 points Operating Highlights for Latin America, Return on Equity 39.8% 35.2% + 4.6 North America, Europe, Asia/Africa and points Hill’s Pet Nutrition Number of Registered Common Shareholders 45,800 46,800 – 2% Board of Directors 19 Number of Common Shares Outstanding 292.7 295.4 – 1% Your Management Team 19 Year-end Stock Price $ 92.88 $ 73.50 + 26% Shareholder Information 21 Eleven-Year Financial Summary 21 ■ Net income increased 15 percent to a record $848.6 million, also setting a record as a percentage of sales, 9.5 percent versus 8.2 percent in 1997, reflecting growing pro- ductivity. ■ Gross profit margin reached a record as well, rising 1.5 percentage points to 52.2 percent. ■ Unit volume growth was driven by strong performances in North America, up

About Colgate 5 percent, Latin America, up 7 percent, and Hill’s Pet Nutrition, up 4 percent. ■ Sales would have increased 6 percent without the impact of translating foreign Colgate-Palmolive is a $9 billion global company serving people in more than 200 countries and currencies into the stronger dollar and divestments. territories with consumer products that make lives ■ New products contributed a record $3 billion of sales, or 33 percent of the total, healthier and more enjoyable. The Company from introductions in the most recent five years. focuses on strong global brands in its core busi- ■ nesses — Oral Care, Personal Care, Household Care, Total return from stock price appreciation and dividends was 28 percent for 1998. Fabric Care and Pet Nutrition. Colgate is following a tightly defined strategy to increase global market leadership positions for key products, such as toothpaste, toothbrushes, bar and liquid soap, deodorants/antiperspirants, dishwashing deter- gents, household cleaners, fabric softeners and pet nutrition.

On the Cover

The young girl wearing a big smile and toting Colgate toothpaste in her backpack was photographed in Warsaw, Poland.

Colgate’s Growing Success 1 Colgate’s Growing Success

Colgate is continuing its record of strong growth and increased profitability through an aggressive strategy which takes the Company well into the next century. Central to this growth doctrine is strengthening market leadership in Colgate’s core categories while increasing the returns from all aspects of the business. Colgate people worldwide are using the latest business tools, working together as an efficient team, to achieve specific growth and shareholder value goals.

Colgate’s Growing Success 2 Dear Colgate Shareholder EXCELLENT DOUBLE-DIGIT EARNINGS GROWTH; 1998 WAS A RECORD YEAR

We achieved in 1998 another share in many other countries Colgate’s financial perfor- year of strong progress for as well. At the same time, mance is strong. And we Colgate. Net income, earnings Colgate’s strong Personal Care believe that Colgate’s proven per share, gross profit margin positions were improved, target- business strategies and global and operating profit margin ing the fast-growing liquid soap, experience will serve us well established new records. Fun- deodorant and hair care seg- into the next century. This con- “Colgate people can be damental to our success — pre- ments. Broad gains in other fidence is based on experi- justly proud of achieving strong market shares here sent and future — is our core categories encompassed ence. Year after year, we have and abroad while driving commitment to people working cleaners, fabric softeners and added to the number of leading down costs sharply in a together. Training and global dishwashing liquids. brands in our portfolio. More- disciplined fashion. I am sharing of ideas enable Our leadership strategy is over, Colgate people are highly delighted with our strong Colgate to maximize its best supported by a powerful but adept at transferring success- 1998 performance, even resource: the 38,000 Colgate simple financial approach that ful programs and products from during economic uncertainty in many areas of the world. people worldwide. enables Colgate to achieve one country to others. For We are looking forward to Colgate people strength- record profits. In 1998, your Colgate shareholders, this has another good year in 1999.” ened our market leadership Company increased net income translated into consistent, Reuben Mark positions. We are proud that 15 percent to a record $849 favorable total return. Colgate-U.S. decisively gained million, or $2.81 versus $2.44 the Number One spot in the per basic share. Gross profit Powerful Strategy Produces domestic toothpaste market margin improved by 1.5 percen- Leadership Positions in 1998. We strengthened tage points to 52.2 percent, and Colgate’s leadership strategy Colgate’s toothpaste market operating profit margin improved begins with introducing innova- by 1.7 points to 15.9 percent. tive new products, and then Both ratios were records. quickly realizing their worldwide Cash flow from operations potential with the most effec- reached a new record as well: tive advertising, promotions $1.2 billion. This healthy cash and distribution. flow also helped us maintain In addition to capturing debt capitalization in the opti- toothpaste leadership in the mum 50 to 55 percent range. U.S., we strengthened our During 1998, Colgate repur- Number One rankings in chased 7.1 million shares at a such countries as Canada, cost of $542.5 million, as part the U.K. and Mexico, and of our previously announced hold leadership positions in share buyback programs. toothpaste in 175 countries. Like other multinationals, Colgate whitening toothpaste, Colgate has faced negative cur- for example, has captured

“I take deep satisfaction from rency translation and reduced almost 50 percent of the Colgate’s having become purchasing power in some world’s whitening segment Number One in the U.S. regions. Still, unit volume grew and has been expanded to toothpaste market, a key 3.5 percent for 1998, driven by 75 countries. Colgate’s global objective for several years. strong performance in North market share for toothpaste From a global perspective, I America, Latin America and is at a record high. am pleased that we achieved our strongest growth in Oral Hill’s Pet Nutrition. Sales were Importantly, our leadership Care, Personal Care and Hill’s $9.0 billion, a decrease of positions extend throughout Pet Nutrition. These are our less than 1 percent. Exclud- all core categories. Colgate most profitable categories.” ing foreign currency transla- also leads the market in liquid Bill Shanahan tion and divestments, sales soaps, men’s stick deodorant, increased 6 percent. liquid cleaners and fabric

3 Colgate’s Growing Success Gross Profit Margin softeners in scores of coun- market share, especially Cost Savings Continue 52.2% 53% tries. New variants of Palmolive where incomes are low. We To support leadership, we rely 50.7% 49.1% shower gel introduced in Europe are working to encourage more on a financial strategy of reduc- 50 helped increase market shares purchases per household ing overhead and increasing 47 in nine countries. Halfway through special-size packaging, gross profit margin. We focus

44 around the globe, in Argentina, innovative distribution and on profitable growth by allocat- new variants of the same education. For instance, our ing 60 percent of capital 0 96 97 98 shower gel quickly achieved programs to increase home expenditures to cost-savings (% to sales) an 11 percent share of this usage in Colombia have helped programs. The money we save

Earnings Per Share Growth segment after launch. In the to more than triple household is invested back into new prod- U.S., we restaged and intro- penetration of fabric softener ucts and advertising and is $3.00 $2.81 duced a new line of Softsoap in just five years. As the mar- returned to shareholders in 2.50 $2.44 brand body washes, capitaliz- ket leader, with 80 percent of the form of increased profits. $2.09 2.00 ing on the demand for colorful, the category, Colgate-Colombia Savings will continue to scented shower gels. World- benefits. Similar programs come from a number of areas. 1.50 wide, our liquid soaps saw are working to build consump- For several years, we have 0 continued double-digit volume tion in Asia. been telling you about the ben- 96 97 98 growth in 1998. efits of the high-tech global (Basic Earnings Per Share) Around the world, a record Leaders Have the software called SAP. This inte- Charts: Gross profit mar- gin continues to $3.0 billion of sales, or 33 Advantage grated software reinforces increase as a percent- percent of the total, came from In addition to its financial streamlining of our business at age of sales, a key goal. new products introduced during rewards, market leadership every level. Starting with the Basic earnings per the last five years. And our provides us with other competi- purchasing of raw materials, share have increased pipeline is full of new products tive advantages. The money we right through to getting prod- by 34% over the past that will offer consumers real commit to advertising and con- ucts on store shelves, SAP pro- two years. value and benefits in the months sumer research is spread over vides Colgate people with a to come. a larger sales base, thereby real-time overview of the supply Building consumption often making it a more efficient chain. Through SAP, they track is as important as increasing investment for Colgate. Being each process, reduce ware- Number One also provides house inventories, control leverage with trade customers, waste and save millions of and recognition value with dollars. consumers. Installation of SAP is com- Effective, sustained adver- plete in the U.S. and expected New Colgate tising is key to our continued to be fully operational in West- Total Fresh Stripe— growth. Total ad spending ern Europe in mid-1999. Now United States increased again in 1998, being implemented in other Colgate enters 1999 having just rising to its highest level ever regions as well, this system announced an exciting new in relation to sales. Media offers opportunities for signifi- toothpaste for the large U.S. mar- advertising is augmented with ket. Colgate Total Fresh Stripe, a cant future savings. And it is striped gel, is the second variant promotions that reach con- helping to ensure our readi- of the Colgate Total line to sumers in their daily lives. ness for year 2000 issues. receive U.S. Food and Drug Linking with popular Disney Another important source Administration approval — the film characters, for example, of savings is the increase in only toothpastes cleared to make is building sales of Colgate regional cooperation. Anticipat- claims for gingivitis and plaque reduction. Early reaction from the children’s toothbrushes in ing this trend, Colgate estab- trade is excellent. 32 countries, from Australia to lished a firm foundation for Germany to Venezuela.

Colgate’s Growing Success 4 Colgate’s Growing Success regionalization years ago. including new ways of stan- itability. High performers serve Colgate-Europe managers are dardizing products and packag- in different countries and jobs, I. STRONGER well prepared to take advan- ing. We are well aware that experience different business MARKET tage of economic integration, every Colgate activity repre- conditions and embrace LEADERSHIP including the transition toward sents a link of efficiency, start- Colgate’s core values. It is pro- page 6 a common currency in 11 coun- ing with the purchase of raw grams and practices like these tries — the euro. materials, all the way to the that add an extra dimension to II. GREATER PROFITABILITY All Colgate divisions rely last step, purchase by the con- the talents of all Colgate peo- page 9 increasingly on expert Regional sumer at store checkout. ple, whose dedicated efforts Purchasing Councils, which have produced another year of III. THE POWER meet several times a year to 38,000 People Working record performance. Colgate OF GLOBAL document best practices and As One Global Team shareholders benefit as well TEAMWORK page 13 negotiate the best prices. In Experienced Colgate people from an exceptional Board of creating these groups, we across all disciplines and Directors, whom we thank for aggregate volume in large con- regions are working in a collec- their expert guidance. tracts with fewer suppliers and tive commitment to drive our Colgate continually rein- save on raw material costs. profitable growth. For instance, forces its core values to This program, in combination teamwork is at the heart of develop the best qualities for with globally driven supply ini- reaping the benefits of SAP. people performance. This is Glossary of Terms tiatives, has saved over $150 Colgate salespeople are also the foundation of Colgate’s Foreign currency translation–the million during the past three sharing best practices with worldwide leadership and con- effect of translating sales or expenses in a non-U.S. currency years. There are opportunities their peers as we move to sumer trust. Our history of into U.S. dollar results. for additional savings, as only team-based selling for large managing all people with Global market position–is based on external market share infor- a portion of such expenditures multi-country trade customers. respect, and in turn their com- mation in major markets. Where are now made regionally or Collaboration is equally impor- mitment to profitable growth external data is not available, primarily in smaller markets, globally. tant for new tightly focused and shareholder value, should management estimates market Regional trade areas have groups of research scientists assure that your Company will position based upon its under- standing of the business and in also helped Colgate consoli- and marketing experts working continue to grow and succeed. relation to competitors. Leader- date manufacturing and reduce together from various locations ship and world ranking reflect costs. Today, we are supplying to develop tomorrow’s Thank You. countries where Colgate has established its brands and are in products to wider geographic products. relation to competitors in those areas from fewer factories, Colgate people in the U.S., markets. Market share–percentage of the each of which specializes in sharing knowledge and learn- category’s retail sales obtained a specific manufacturing ing to work in teams, are the by one brand or company. In this report, unless otherwise process. Stellar results from first to have been trained in Reuben Mark stated, market shares are based the developed world indicate “Valuing Colgate People,” an Chairman and on value shares provided by either ACNielsen or IRI. further savings ahead, as con- award-winning program recog- Chief Executive Officer SAP–computer software that helps solidation unfolds in Latin nized by the U.S. Department companies link all of their busi- America and Asia. Already, in of Labor. Beginning this year, ness processes into one inte- grated system, tying together just two years, the number of Colgate people worldwide are disparate business functions factories in Latin America has participating in this program. and facilitating the smooth running of the business. declined to 18 from 32. Its principles of managing with William S. Shanahan Supply chain–the process that Work in this area is far from respect are part of our promo- President and encompasses every effort involved in producing and deliv- done, and we will continue to tion and performance appraisal Chief Operating Officer ering a final product from the benefit from new technologies system. supplier of ingredients to the retail customer, including plan- and improved efficiencies, We also strive to build our ning, sourcing, making and future management team as delivering goods. intently as we grow our prof- Unit volume growth–growth in product units sold, weighted to reflect price per unit.

5 Colgate’s Growing Success I. STRONGER MARKET LEADERSHIP Building Number One Positions in Core Categories— Colgate’s Big Brands Generate Market Share Growth and Increased Profitability

Colgate’s powerful global brands performed like stars in 1998. Global market shares increased for toothpaste, liquid soaps & shower gels, deodor- ants/antiperspirants, liquid cleaners, dishwashing prod- ucts and fabric softeners. Fully $3.0 billion of sales — a record 33 percent of total 1998 rev- enues — came from new prod- ucts that did not exist five years ago.

Growing Leadership in Oral Care The huge success of Colgate Total toothpaste, coupled with the expansion of Colgate Total Fresh Stripe and Colgate whitening, has catapulted Colgate’s global toothpaste leadership to an all-time high. The key achievement of all, capturing annual leadership of the $1.6 billion U.S. toothpaste market, occurred in 1998. Gaining almost half of the fast-growing whitening segment, Colgate whitening toothpaste is now sold in 75 countries.

Colgate Total Fresh Stripe, a Number One in Toothpaste 32% mint-flavored gel, has been Colgate’s growing leader- Most Successful 30.4% introduced in 58 markets as a ship in Oral Care extends Toothpaste — 28 24.6% second variant of the Colgate beyond toothpaste. New tooth- 22.4% United States 24 Total line. Higher toothpaste brushes are selling briskly. The The only toothpaste to gain FDA market shares often resulted. In premium Colgate Total Profes- approval to prevent gingivitis, plaque 20 Canada, Colgate Total Fresh sional cleans down and around and cavities, Colgate Total was one 0 of Business Week’s “Best New Products Stripe helped raise overall tooth- teeth. It has added incremental 96 97 98 of 1998.” Explaining its therapeutic ACNielsen value market shares paste market share, which was U.S. toothbrush market share benefits from behind the counter are almost 40 percent for 1998. Its since its mid-1998 launch. New Julia Reyes and Clark Wyly of Colgate Chart: Colgate’s share of the U.S. U.S. launch early in 1999 adds brushes for children are also Oral Pharmaceuticals, with Dr. Noel toothpaste market is up almost further impetus to domestic doing well worldwide, including Capestany of Alexandria, VA, and six share points over 1997, Dr. Sara Cohen of Washington, DC. reflecting strong new products. leadership. (continued on page 7)

Colgate’s Growing Success 6 STRONGER MARKET LEADERSHIP (continued from page 6) tions in Poland, Vietnam, My First Colgate with Barney,* Lebanon and Senegal were sig- Colgate Grip-em’s and Disney nificantly expanded in 1998. character brushes. Starting with France in 1997,Ajax Fête des Fleurs has Focus on Global Brands been introduced in 30 coun- Strong returns from Oral Care tries, quickly boosting liquid and other core categories help cleaner leadership in most. fund business-building invest- And Hill’s expansion into ments. Total advertising spend- 17 new countries in the past ing rose again in relation to five years has accelerated sales in 1998. Media invest- its growth in pet nutrition. ment is concentrated on our global brand equities, which Having the Right Product Number One Toothpaste Brand — Brazil bring in 70 percent of sales. Mix for Each Country Colorful in-store displays, Consumer research increased The Company’s dual strategy sweepstakes promotions and too, with Colgate conducting is to create innovative new youth-oriented advertising help make popular-priced Sorriso more than 500,000 in-country products and offer choices for Brazil’s leading toothpaste. interviews. consumers across the price Finding new trends enables spectrum. Often, both premium Colgate to capitalize on rele- and budget products are vant consumer benefits. Such offered in the same country. In insight generated the success Mexico, new premium styling of Colgate Total early on. Per- aids under the Palmolive sonal Care growth is being Optims brand brought incre- boosted by the experiential mental market share. So did Softsoap Brand Body Wash, Five Varieties— United States Palmolive Botanicals line. new varieties of Caprice hair When research indicated Having quickly added incre- care, a family value brand. In that consumers wanted more mental share to the Palmolive China, Colgate introduced an experiential bathing products, Softsoap, the fast-growing brand in Australia, Brazil and entry-level toothbrush while body wash, added new mood- evoking varieties at affordable the Philippines, this line will roll simultaneously launching prices. The line includes out broadly in 1999. In House- Colgate Total to more prosper- Hydrating, Nourishing, Relax- ing, Refreshing and Soothing hold Care, understanding the ous consumers. variants. Double-digit volume growth resulted in 1998. trend to combination dishwash- The same holds true for ing liquid & antibacterial hand distribution. For small shops, soap products has helped gain Colgate adapts its package dishwashing share in such designs to offer single-size markets as the U.S., France, sachets, small refillable bottles Record Advertising Levels — Greece, Canada, Denmark, and paperboard cartons. Yet Hill’s-United States Australia and Venezuela. And around the corner, giant sup- New advertising reinforces Hill’s close ties with veterinarians, reinforcing Hill’s close associa- erstores stack huge displays elevating the image of Science tion with veterinarians is Pre- of the same brands in Diet brand pet food. Also adding to Hill‘s strong perfor- scription Diet n/d, the first larger sizes. mance in 1998 was a series of new products, including the product clinically proven to Colgate excels at identify- new Science Diet dry and improve both the quality and ing big opportunities early, canned varieties. length of life for dogs undergo- developing innovative new ing cancer treatment. products to fulfill those needs, Market leadership also and quickly bringing them to entails geographic expansion. market worldwide. In a chang- Toothpaste has been intro- ing marketplace, Colgate pos- duced into 250 cities in China, sesses the core strengths to 100 of which have populations continue to increase its global

WHAT VETS FEED THEIR PETS of more than one million leadership positions. people. Also, Colgate opera-

*The name and character Barney are trademarks of The Lyons Group. Barney is Reg. U.S. Pat. & TM. Off.

7 Colgate’s Growing Success Ajax Part of Biggest Floral Fiesta—Greece Sales of Ajax Fête des Fleurs rose sharply after a winning promotion in Greece. Bottles of the fragrant cleaner were packed with flower seed packs, and consumers received free product samples and coupons. Ajax Fête des Fleurs is a major new global brand for Colgate.

European Liquid Cleaners 30.0% 30%

27.9% 28 25.8% 26

24

0 96 97 98 ACNielsen/IRI value market shares

Chart: Increasing its share of the liquid cleaners market in Western Europe, Colgate has added more than four share points in two years.

Excellent Response to Palmolive Botanicals— Philippines Colgate-Philippines, one of five lead markets for a new line of Personal Care products, has increased its shampoo market share to 28 percent, further strengthening Palmolive as the coun- try’s top brand. The Palmolive Botani- cals line offers natural ingredients and a renewing experience. It will soon include skin cleansers, linked by colors and principal ingredients.

Philippines Shampoo 30%

27.7% 28

25.5% 26

25.7% 24

0 4Q96 4Q97 4Q98 ACNielsen value market shares

Chart: Strongly increasing its shampoo market share since the final quarter of 1997: Colgate-Philippines.

Colgate’s Growing Success 8 II. GREATER PROFITABILITY

Bringing Colgate’s Products to Consumers Faster and More Cost-Efficiently than Ever Before

High-Tech Software Cutting order-cycle time means Colgate’s increasingly effi- gories. For example, stream- Boosts Global having the right amount of the cient supply chain is central lined operations enabled Effectiveness right product at the right place to its financial strategy — Colgate-Europe to increase Colgate’s state-of-the-art data at the right time. This saves increasing profit margins and 1998 operating earnings by center in Piscataway, NJ, has money for Colgate and provides reducing overhead. Meeting 12 percent despite negative replaced over 25 individual pro- better service to customers. For these objectives enhances currency translation. The gross cessing centers worldwide. From example, when an order arrived financial power to invest in new margin for Colgate’s toothpaste here, the Company manages at Colgate-U.S. five years ago, it products, increase advertising category has increased six communication networks and the advanced software — SAP — that took ten days to move products and provide a healthy return percentage points since 1995, monitors activities across the to the store shelf. Today, it to shareholders. Profitability through global sourcing, entire supply chain. Left to right: takes four days, saving money set new all-time records for regional manufacturing and Arthur Fleiss, Maria Zuliani, Ann and serving customers better. Colgate in 1998. Gross profit other initiatives. Recent Marie Spiller, Deighton Weekes, This improvement is happening margin, earnings before inter- changes in Colgate’s fabric Joe Spitaleri and Anthony Cernuto, Division Coordinators. around the world. In Brazil and est and taxes (EBIT), and softener business helped Australia, for example, shelf return on capital all improved generate record sales and delivery of Colgate products is strongly. operating profits for that comparable to that of Colgate- Contributions came from category in 1998. United States. across geographies and cate-

9 Colgate’s Growing Success Opportunities Ahead the world’s most efficient global marketer of consumer EBIT Margin Chart: A key profitability Significant profit potential (Earnings Before Interest & Taxes) indicator, the EBIT margin lies ahead — from technology, products. 18% in 1998 increased by 1.7 Global negotiation is from regionalization, from stan- 15.9% percentage points to dardization and from creation Colgate’s first priority for effi- 16 14.2% 15.9%, an all-time record. of new processes for multi- cient purchasing. When this 14 country use. is not possible, Colgate Region- 13.2% 12 Colgate has implemented al Purchasing Councils negoti- high-tech global software, SAP, ate with a limited number of 0 96 97 98 in the U.S., most of Europe, suppliers. Their objective is (% to sales) and part of Asia. The process to get the highest quality raw is now under way in Latin Amer- materials at the lowest prices ica and the rest of Asia. In in the various trade blocks every Colgate area where SAP where Colgate does business. has been installed, customer Approximately half of purchas- service performance is better, ing expenditures are made inventory levels are down, the through these Councils, with Speed Stick in cycle time of deliveries has significant additional contri- Multi-Language improved and working capital butions expected as this Packs — United States is lower. effort grows. Global manufacturing for Mennen At Colgate-U.S., for exam- Consolidation of North Speed Stick deodorant at a single ple, supply chain inventory American and European manu- location in Morristown, NJ, serves 48 has been reduced to half that facturing at focused factories different countries. Inspecting the multi-language labeling, which required just a few years has strengthened profit mar- enables the same product to be ago, while customer service gins for both regions. Similar sold in broad regions, is Operator levels have improved to 99 (continued on page 11) Technician Marie Honachefsky. percent. The end result is a nearly 10 percent reduction in the average cost of a delivered case of Colgate product. The outstanding success of Colgate Total toothpaste also reflects the faster infor- mation flow SAP makes possi- ble. Within four weeks of its launch, Colgate Total attained 90 percent distribution throughout the United States. Importantly, we expect greater future benefits, since as SAP is expanded globally, implementation is faster and smarter. In addition, we are partnering with SAP on devel- oping new systems that reap more benefits from Colgate’s existing investment.

Regional/Global Efficiencies Manufacturing consolidation, efficient purchasing, product harmonization and better service to different types of retailers all contribute to fulfilling Colgate’s goal of being

Colgate’s Growing Success 10 GREATER PROFITABILITY

Speed-to-Market — United States Working closely with its largest retail customers, Colgate schedules shipments that enable truck-to-truck transfers to place product directly on store shelves, often arriving within 24 hours. This speed-to-market reduces the amount of money tied up in inventory and results in higher sales and greater efficiency for Colgate and its trade partners.

(continued from page 10) Colgate has also taken savings are beginning in steps to increase efficiency in other parts of the world. the ASEAN region. In December Today, in Latin America, 1998, a regional research cen- toothpaste is made in nine ter was established in the Distribution to factories, down from 15, and Philippines. Regional sourcing Small Store — China toothbrushes are made in of toothpaste and soap will Selling to small retail outlets is three facilities, compared with begin in spring 1999. central to Colgate’s success in this nine locations two years ago. The Company is becoming country of 1.3 billion people. Rapid A single facility in Mexico sup- better at servicing all of its cus- expansion to secondary and tertiary plies liquid products for that tomers, particularly in changing cities has helped make Colgate the leading Western brand in toothpaste country and part of Central markets like Asia, where multi- and toothbrushes. America. national retailers are joining traditional stores on the retail landscape. Meeting the differ- ent requirements of the mod- ern trade, such as more frequent deliveries and exclu- sive consumer promotions, positions Colgate as the sup- plier of choice.

Continuous Improvement Colgate continues to focus on profitable growth by allocating 60 percent of the capital expenditure budget to pro- grams that pay back quickly. Projected rates of return aver- age over 40 percent. New cap injection molds for shampoo

11 Colgate’s Growing Success Cost Savings from Structural Bottle Under development for use around the world, this unique bottle saves Colgate both time and money. It uses 20 percent less plastic and lends itself to efficient filling line and labeling proce- dures. It will be used for such products as Ajax Fête des Fleurs cleaner as it is rolled out globally.

Streamlined Production— Mexico Colgate benefits from economies of scale at this integrated liquids plant — a showcase for low-cost and shower gel in Europe will production and technical excellence. pay for themselves in less than The modern four-year- old facility supplies liquid four years. And installation of products, such as market- laminate tube-making lines in leading Suavitel fabric softener, for Mexico and Brazil, where Colgate leads the part of Central America. Monitoring quality control toothpaste market, also will is Alfredo Hernández pay back in under four years. García, Operator. All over the world, Colgate people are finding and imple- menting new and better pro- cesses. In the U.K. plant, an engineering team designed The World’s Largest and an enhanced system for guid- Most Efficient Toothpaste Cap Mold — Global ing bottles through the line This steel mold is one of seven units changeover process, reducing around the world producing 1.4 1 billion flip-top toothpaste caps downtime from 1 ⁄2 hours to every year. Developed in partnership 15 minutes. In Indiana, a team with a global supplier, the unit, the largest flip-top closure mold ever replaced the mechanical fin- built, weighs one ton and efficiently gers used to transfer empty produces 128 caps in a single 15-second cycle. tubes to the toothpaste line with a simple gravity feed sys- tem, an efficiency with poten- tial cost savings of $700,000. The new ideas coming from the minds of Colgate people everywhere are never-ending, and they provide ongoing sav- ings to meet aggressive prof- itability improvement targets to continue Colgate’s record of strong performance.

Colgate’s Growing Success 12 III. THE POWER OF GLOBAL TEAMWORK

Colgate’s 38,000 Employees Sharing Across Borders— Delivering Results and Enhancing Shareholder Value

Creating Colgate people are at the heart saving millions of dollars. Multi-Country of the Company’s growing suc- And as the experience of Advertising — Europe cess. With 38,000 dedicated one region is transferred to At Colgate’s European headquarters employees across all major another, so too are the best in Paris, a single advertising geographies, Colgate benefits practices. For example, when campaign was developed to re- from diverse cultural and mar- employees at the liquids plant launch Colgate Total across 16 ket expertise. Colgate people in France developed a more countries in the European division. exchange proprietary knowl- efficient way to switch produc- This approach conveys the same key benefits everywhere and saves edge and work in multi-country tion between products, reduc- on creative and production costs. Left teams to develop the best ing the changeover process to to right: Helen Landau, Philippe products, best manufacturing one-fifth the time, that knowl- Sandt and Arturo Garcia, Directors and best distribution. edge was passed along to ben- involved in the marketing launch. Colgate teams are using efit liquids production in Ohio. SAP integrated software and Colgate marketers across Europe also teamed up to tell

13 Colgate’s Growing Success Key Account Training— Asia/Latin America Colgate sales executives from 11 countries in Asia and Latin America assembled in Mexico City for a four-day seminar on team- based selling to “Modern Trade” accounts. In the developing world, larger retailers are joining small stores as places where people increasingly shop. Aligning the objectives of Colgate with those of its customers improves customer satisfaction, sales and profitability. Left to right: Cheng Feng, Taiwan; Patricia Cano, Mexico; Lim Kim Seng, China; Luis Manuel Ocampo Arias, Costa Rica, and Ian Wilson, Jamaica.

the story of Colgate Total, ■ Total Productive Mainte- stressing its unique benefit of nance training, held at fac- working both above and below tories. The user-friendly the gum line to fight gingivitis. courses help reduce equip- Citing new clinical support, the ment downtime, increase pro- message was carried across ductivity and improve safety. the continent. This 16-country campaign has helped to add ■ Marketing Training pro- an average of one to two share grams, held everywhere. points to European market Managers hone their skills in shares for Colgate Total. advertising, consumer insight, The power of global effective promotions and teamwork is also seen in the media selection. cross-training that occurs Com- Global teamwork goes way pany-wide. The average Colgate beyond market data and tech- person took part in seven days nology. Developing the best of training in 1998, such as: qualities in Colgate people means embracing core values, ■ Key Account Management which involve caring for col- In-Factory Training— training program, held in leagues, customers, consumers North America Mexico City. Colgate execu- and the communities where Colgate people at the Cambridge, tives from Europe and North Colgate does business. Colgate OH, liquids plant share production America — experienced in sell- is recognized by many organiza- techniques with their counterparts at Colgate’s liquids plant in ing to large trade customers tions, including the U.S. Depart- Compiègne, France. Clockwise, such as Wal-Mart — made pre- ment of Labor, for effective from left: Sheri Cooley, Victor Okotcha, sentations to sales directors programs that enhance interper- Craig Stoneburner, Jocelyn Cheeks, from Asia and Latin America, sonal skills, and promote Don Palmer, Bob Farrar and Karen markets that large chains are respect and workforce diversity. Froment. beginning to enter. This culture flows through to the bottom line and benefits all shareholders.

Colgate’s Growing Success 14 GLOBAL BUSINESS REVIEW

Colgate’s growing success reflects the Company’s ability to increase market leadership positions in the 213 countries and territories where it does business. New products, aggressively supported by advertising, were a major contributor to Colgate’s 1998 growth. Most important launches cut across several or all geographic regions. In keeping with a desirable geographic balance — approximately 55 percent of sales comes from Developed Markets and 45 percent from High Growth Markets — sales from new products are also balanced between these two areas.

Colgate- Colgate-Latin America had an growth, most notably Ajax tainty in Brazil. In Latin Amer- excellent year, with market Fiesta de Flores fragranced ica’s other large country, Mex- Latin America share gains, successful new cleaner and Suavitel vanilla ico, Colgate market shares are product introductions and fabric softener. healthy, and sales and operat- innovative programs to build Seven decades of history in ing profits continue to rise. consumption. Contributing to Latin America, leading market New product activity and con- Latin America strong Oral Care market shares shares and considerable posi- sumption building are also contributed 27% of sales, or $2.4 billion, in 1998. Unit across the region were Colgate tive momentum should stand strong, as they are throughout volume grew 7% and Sensation whitening and Colgate in good stead in the all of Latin America. sales increased 2%, Colgate Double Cool Stripe face of current economic uncer- affected by currency toothpastes, plus new herbal translation. The region variants for Sorriso in Brazil. includes Mexico, Central America, South America Innovations in toothbrushes and the Caribbean. and rinses, for example, the Colgate Sensation brush and Sorriso herbal mouthwash, drove category growth in Oral Care as well. In fast-growing Personal Care, Palmolive Botanicals shampoo, Lady Speed Stick gel deodorant and Optims hair care products added incremen- Mexico tal market share in various countries. Global initiatives in home care also helped drive Latin America business

15 Colgate’s Growing Success Colgate- North America

United States

Colgate-North America had ing not only from Colgate Total, with a flexible head in June and its fourth consecutive year of but also Colgate tartar control has already shipped Colgate’s strong, profitable growth in plus whitening. Toothbrush new Star Wars* line of chil- the world’s most competitive market shares moved up with dren’s toothpaste and tooth- North America marketplace. Increased U.S. the launch of the premium brushes. contributed 23% of sales, or $2.0 billion, in 1998. market shares were achieved Colgate Total Professional Gross profit margin Unit volume grew 5% for 8 of the 12 categories in brush at mid-year. In Canada, improved by three full percent- and sales rose 6% from which Colgate competes, dri- Colgate’s leadership tooth- age points in 1998, and over- continuing operations. ven by record new product paste market share increased head costs declined as a The region includes the sales. Importantly, Colgate to almost 40 percent with the percent to sales. Colgate initi- United States, Canada won impressive share gains help of the recent Colgate Total ated its strategic profitability and Puerto Rico. in toothpaste, dishwashing liq- Fresh Stripe entry. improvement programs in uid, bar and liquid soaps and The steady stream of innov- North America, which as a deodorants/antiperspirants. ative new products will con- result now leads Colgate Colgate-U.S. decisively tinue in 1999. Colgate Total geographic divisions in gross gained leadership of the Fresh Stripe, the second profit margin. The same pro- $1.6 billion domestic tooth- Colgate Total offering to receive grams, fine-tuned by North paste market in 1998, benefit- U.S. Food and Drug Administra- American experience, are tion approval, starts shipping being expanded worldwide. in March. Colgate plans to launch the premium-priced Colgate Navigator toothbrush

*Star Wars is a trademark of Lucasfilms Ltd.

Colgate’s Growing Success 16 Colgate- New product activity strength- softener all performed well. ened Colgate’s European In Germany, the launch of Europe Europe contributed 23% of sales, or market shares and leading Palmolive Pots & Pans helped $2.1 billion, in 1998. Sales were positions, especially in the put Colgate in the Number unchanged and would have higher margin segments of One position in dishwashing grown 1% without the effect of Oral, Personal and Household liquids. currency translation and Russian economic collapse. Unit volume Care. A relaunch of Colgate In the U.K., the addition for Western Europe rose 2%. Total toothpaste, advertised of three Palmolive shower with new clinical support, has gel variants strengthened added market share to the Colgate’s market position. The brand following its introduc- line also succeeded especially tion. Colgate Sensation whiten- well in Italy, Belgium, Portugal ing toothpaste also had a very and Germany. strong year. All categories contributed In other categories, Ajax to the outstanding increase Fête des Fleurs liquid cleaner, in operating profits. Colgate Palmolive shower gels, Palm- continues to make improve- olive dishwashing products ments throughout its European and Soupline peach fabric supply chain with the imple- mentation of SAP integrated software. Efficiencies from regional manufacturing and purchasing, France as well as lower distribution costs should provide savings well into the future.

Colgate- Colgate continues to build consumption in Asia/Africa, Asia/Africa protect strong franchises and focus activities in areas of strength. The very strong growth Colgate is achieving in Asia/Africa contributed 16% of China helped in 1998 to par- sales, or $1.5 billion, in 1998. Unit tially offset economic weak- volume decreased 1% on 12% ness in the ASEAN countries lower sales, reflecting currency of Malaysia, the Philippines translation. This region covers Asia, the South Pacific, Africa and Thailand. Already the and the Mid-East. leading Western marketer of toothpaste and toothbrushes, Malaysia Colgate-China plans to

17 Colgate’s Growing Success increase its distribution area ciency in this area. A regional One overall in body cleaning from the current 250 cities research center opened in products. Toothbrush market to 400 in 1999. The Colgate the Philippines in December. share moved up five percent- Sensation whitening tooth- Regional sourcing of tooth- age points, making Colgate paste and toothbrush were paste and soap begins in Number One. launched late in 1998. spring 1999. Market shares Senegal is a good example Consumption in the ASEAN are generally healthy. In the of the Company’s consumption- countries showed signs of Philippines, Colgate has added building programs throughout recovery towards year-end. market share in shampoo and Africa. Colgate has developed Colgate has taken steps to toothpaste. Malaysian shares a unique indirect distribution further enhance its strong mar- are up in toothpaste, laundry system to assure that 8,000 ket shares and improve effi- bars and liquid soaps. retail shops get a visit from a In the South Pacific, as a salesperson at least weekly. result of new product activity, Both sales and key market

Senegal Colgate-Australia increased key shares improved strongly market shares in all major cat- in 1998. egories. Palmolive Naturals became the leading shower gel brand, and Colgate- Australia became Number

Hill’s Hill’s had an excellent year. Record levels of advertising The Prescription Diet pet food Record new product activity, supported a U.S. campaign line was also expanded to Pet Nutrition increased advertising and geo- for Science Diet, themed “What include new nutritional prod- graphic expansion all fueled Vets Feed Their Pets.” New ucts for pets with allergy and growth. A global leader in pet Science Diet products include gastrointestinal problems. nutrition, Hill’s continues to dry varieties for cats, new Outside the U.S., Hill’s had strengthen its ties to veterinari- canned varieties in chunk excellent market share growth ans. Efficiency and customer and gravy form for cats, and in Europe and Japan and bene- service improved, reflecting dry varieties for dogs. A new fited from continued extension greater productivity at the Hill’s- product, Prescription Diet n/d of Science Diet in Australia Europe factory and the benefits for dogs undergoing cancer and New Zealand. Expansion of of SAP, especially in inventory treatment, received tremen- television advertising and new management. dous veterinarian acceptance. products tailored specifically for the Japanese market are The Hill’s business contributed 11% strengthening Hill’s leadership of sales, or $1.0 billion, in 1998. Unit position. Hill’s has the Number volume grew 4% and sales rose 3%. One dry dog food market share Selling its products in 68 countries, in Japan. Hill’s has almost all its sales in the developed world.

Hill’s-Japan

Colgate’s Growing Success 18 Dollars in Millions Except Per Share Amounts

Global Financial Review

Financial Contents Speed Stick Ultimate odor-fighting antiperspirant and Lady Speed

Results of Operations 1 Stick gel. Adding new market shares were Palmolive lemon Reports of Management and 6 dishwashing liquid & antibacterial hand soap. Independent Public Accountants Sales in Latin America increased 2% on 7% volume growth. The largest increases were achieved in Mexico, Brazil, Venezuela Consolidated Statements of Income 7 and Central America. Contributing to the strong growth in the Consolidated Balance Sheets 8 region were Oral and Personal Care sales. Increased Oral Care Consolidated Statements of Retained 9 sales were driven by Colgate great regular flavor and Colgate Dou- Earnings, Comprehensive Income ble Cool Stripe toothpastes. Personal Care sales were increased and Changes in Capital Accounts by Palmolive Botanicals shampoo, Palmolive soap and Protex Consolidated Statements of Cash Flows 10 Fresh soap. Notes to Consolidated Financial Statements 11 Sales in Europe remained flat in 1998 due to the effects of Eleven-Year Financial Summary 21 weak economic conditions in Russia, while volume grew 1%. The United Kingdom, Italy, Belgium and Greece achieved the strongest sales growth and volume increases in the region. Sales in the Results of Operations United Kingdom and other countries were helped by strong sales of Palmolive shower gels and Colgate Sensation whitening tooth- Worldwide Net Sales by Business Segment and Geographic Region 1998 1997 1996 paste. The continued success of products such as Ajax Fêtes des Fleurs, in three different fragrances, and the introduction of two Oral, Personal and Household Care North America (1) $2,047.5 $1,992.5 $1,869.0 new dishwashing products also contributed to the volume increase Latin America 2,407.9 2,363.8 2,124.8 in this highly competitive market. Europe 2,067.7 2,078.8 2,173.4 Sales in the Asia/Africa region decreased 12% as volume Asia/Africa 1,452.6 1,656.3 1,713.1 decreased 1%, reflecting weaker ASEAN currencies. Volume Total Oral, Personal and Household Care 7,975.7 8,091.4 7,880.3 Total Pet Nutrition (2) 995.9 965.3 868.7 declined in the ASEAN countries of Malaysia, the Philippines and Total Net Sales $8,971.6 $9,056.7 $8,749.0 Thailand, reflecting continued economic difficulties, and in India as a result of aggressive competition. Partially offsetting declines (1) Sales in the United States for Oral, Personal and Household Care were in the ASEAN countries were strong growth in China and increases $1,799.6, $1,756.1 and $1,610.4 in 1998, 1997 and 1996, respectively. (2) Sales in the United States for Pet Nutrition were $688.6, $689.4 and $630.1 in Australia, Taiwan and Vietnam. in 1998, 1997 and 1996, respectively. Sales for Hill’s Pet Nutrition increased 3% on 4% volume growth. Within the United States, sales of Prescription Diet prod- Net Sales ucts increased due to the introduction of new products including Worldwide net sales decreased 1% to $8,971.6 in 1998 on vol- Prescription Diet n/d, the first product clinically proven to improve ume growth of 3.5%. Sales would have grown 6%, excluding the the quality and life expectancy of dogs undergoing cancer treat- effect of foreign exchange declines and divestments. Sales in the ment. Strongest growth occurred in Japan and Europe, where Oral, Personal and Household Care segment decreased 1% on 3% introduction of new products and increased advertising fueled volume growth, while sales in Pet Nutrition increased 3% on 4% that growth. volume growth. In 1997,worldwide net sales increased 4% to $9,056.7 on In 1998, sales from continuing businesses in North America volume growth of 7%, reflecting volume increases by all divisions. increased 6% as unit volume rose 5%. Included in the strong North America posted overall sales and volume growth of 7%. growth in Oral Care were launches of new products such as In Europe, sales decreased 4% in 1997 on 5% higher volume, Colgate Total toothpaste, which was launched in late 1997. due primarily to weaker European currencies. Latin America led Success in Personal Care resulted from the launch of three new the Oral, Personal and Household Care segment with an 11% fragrance varieties of Softsoap body wash, Softsoap hand gel, increase in sales on 10% volume growth. Sales in the Asia/Africa region decreased 3%. Excluding divested businesses, sales in

1 Colgate’s Growing Success Dollars in Millions Except Per Share Amounts

Asia/Africa declined 2% on 5% volume growth. The Pet Nutrition Europe posting gains of 27%, 4% and 12%, respectively. The segment increased sales 11% on 9% volume gains. North America and Europe profitability increase includes the effect of higher margins on higher volumes. In Latin America, the Gross Profit increase in profitability was 3% less than the increase in volume, Gross profit margin increased to 52.2%, above both the 1997 primarily due to the impact of foreign exchange. EBIT in Asia/ level of 50.7% and the 1996 level of 49.1%. This favorable trend Africa decreased 11%, reflecting weakened economies in the reflects the Company’s financial strategy to improve all aspects ASEAN countries and increased competition in India. EBIT in the of its supply chain through global sourcing, restructuring and Pet Nutrition segment increased 7% on both higher volumes and other cost reduction initiatives, as well as its emphasis on higher gross profit margins. margin products. Interest Expense, Net Selling, General and Administrative Expenses Interest expense, net, was $172.9 compared with $183.5 in 1997 Selling, general and administrative expenses as a percentage of and $197.4 in 1996. The decline in interest expense is primarily sales were generally level: 36% in 1998, 36% in 1997 and 35% in the result of lower average debt levels during the year compared 1996, reflecting higher advertising costs offset by the Company’s with 1997 and a decrease in interest rates. continued focus on expense containment. Income Taxes Other Expense, Net The effective tax rate on income was 32.1% in 1998 versus Other expense, net, consists principally of amortization of good- 32.8% in 1997 and 33.5% in 1996. Global tax planning strate- will and other intangible assets, minority interest in earnings of gies, including the realization of tax credits, benefited the less-than-100%-owned consolidated subsidiaries, earnings from effective tax rate in all three years presented. equity investments and other miscellaneous gains and losses. Other expense, net, decreased in 1998 from $72.4 to $61.2, Net Income primarily due to lower amortization expense and gains from sales Net income was $848.6 in 1998 or $2.81 per share compared of non-core product lines and other assets. with $740.4 in 1997 or $2.44 per share and $635.0 in 1996 or During the third quarter of 1998, the Company divested certain $2.09 per share. non-core brands and recorded a one-time pretax gain of $42.4 1998 1997 1996 ($26.0 aftertax) on the sale of the U.S. HandiWipes brand, which Identifiable Assets was offset by one-time charges, primarily to cover a decision to Oral, Personal and Household Care substantially reduce the Company’s operations in Russia, follow- North America $2,591.0 $2,553.2 $2,531.4 ing the severe contraction of the Russian economy, as well as the Latin America 2,128.3 2,204.8 2,365.1 Company’s continuing program of product standardization and Europe 1,329.9 1,201.5 1,236.3 Asia/Africa 952.4 891.9 1,001.5 organization redesign. The pretax charge for Russia was $25.0, Total Oral, Personal and Household Care 7,001.6 6,851.4 7,134.3 which covered a write-down of assets, employee termination Total Pet Nutrition 502.6 517.3 578.6 costs and the settlement of contractual obligations, which were Total Corporate 181.0 170.0 188.6 substantially implemented before year-end. Total Identifiable Assets (1) $7,685.2 $7,538.7 $7,901.5

Worldwide Earnings by Business (1) Long-lived assets in the United States, primarily fixed assets and goodwill, Segment and Geographic Region 1998 1997 1996 represented approximately one-third of total long-lived assets of $5,330.0, $5,234.9 and $5,415.6 in 1998, 1997 and 1996, respectively. Oral, Personal and Household Care North America $ 395.5 $ 312.6 $ 258.2 Latin America 502.0 483.0 410.7 Liquidity and Capital Resources Europe 317.5 283.5 280.7 Net cash provided by operations increased 7.4% to $1,178.8 com- Asia/Africa 158.6 178.3 215.3 pared with $1,097.8 in 1997 and $917.4 in 1996. The increases Total Oral, Personal and Household Care 1,373.6 1,257.4 1,164.9 Total Pet Nutrition 173.8 162.5 127.3 reflect the Company’s improved profitability, lower cash taxes and Corporate (124.4) (134.1) (140.2) working capital management. Cash generated from operations Earnings Before Interest and Taxes 1,423.0 1,285.8 1,152.0 was used to fund capital spending, repurchase stock and Interest Expense, Net (172.9) (183.5) (197.4) increase dividends. Income Before Income Taxes $1,250.1 $1,102.3 $ 954.6 During 1998, long-term debt increased from $2,518.6 to $2,582.2 and total debt increased from $2,677.1 to $2,757.5. Earnings Before Interest and Taxes (EBIT) The increase includes additional net issuances of medium-term EBIT increased 11% in 1998 to $1,423.0 compared with notes of approximately $210 partially offset by lower commercial $1,285.8 in 1997. EBIT for the Oral,Personal and Household paper borrowings. Care segment was up 9%, with North America, Latin America and

Colgate’s Growing Success 2 Dollars in Millions Except Per Share Amounts

As of December 31, 1998, Capital expenditures were 4%, 5% and 5% of net sales for 1998, Cash Flow from Operations $461.2 of domestic and foreign 1997 and 1996, respectively. Capital spending continues to be $1,200 $1,178.0 commercial paper was outstand- $1,097.8 focused primarily on projects that yield high aftertax returns, 1,000 ing. These borrowings carry a Stan- $917.4 thereby reducing the Company’s cost structure. The higher levels dard & Poor’s rating of A1 and a in 1997 and 1996 primarily reflect capital spending relating to 800 Moody’s rating of P1. The commer- the Company’s restructuring programs. Capital expenditures for cial paper as well as other short- 600 1999 are expected to continue at the current rate of approxi- term borrowings are classified as 0 mately 4% of net sales. long-term debt at December 31, 96 97 98 Other investing activities in 1998, 1997 and 1996 included ($ millions) 1998, as it is the Company’s intent Chart: Colgate’s improved strategic acquisitions and divestitures around the world. The and ability to refinance such obliga- profitability helped increase aggregate purchase price of all 1998, 1997 and 1996 acquisi- tions on a long-term basis. The Com- cash flow to a record tions was $22.6, $20.3 and $38.5, respectively. The HandiWipes pany has additional sources of $1,178.0 in 1998. brand was sold in 1998, and the Sterno fuel brand was sold in liquidity available in the form of lines 1997. The aggregate sale price of all 1998,1997 and 1996 sales of credit maintained with various banks. At December 31, 1998, of brands was $57.4,$101.4 and $25.1, respectively. such unused lines of credit amounted to $1,670.9. In addition, at The Company repurchases com- December 31, 1998, the Company had $203.8 available under mon shares in the open market and Aftertax Return on Capital previously filed shelf registrations. private transactions to provide for 24% 20.4% 20 As of December 31, 1997,$607.5 of domestic and foreign employee benefit plans and to 18.0% commercial paper was outstanding. An unused line of credit of maintain its targeted capital struc- 15.8% 16 approximately $1,586.4 was available in addition to $697.8 avail- ture. Aggregate repurchases for able under previously filed shelf registrations. 1998 were 7.1 million shares,with 12

In 1996, the Company entered into a $496.3 loan agreement a total purchase price of $542.5. 0 and obtained a $406.0 term loan with foreign commercial banks. In 1997,2.8 million shares were 96 97 98 Chart: Colgate’s return In addition, the Company issued $100.0 of notes in a private repurchased with a total purchase on capital increased by placement and issued $75.0 medium-term notes under previ- price of $175.1. 2.4 percentage points to ously filed shelf registrations. Dividend payments were $345.6, 20.4% in 1998, reflecting The ratio of net debt to total capitalization (defined as the ratio up from $333.4 in 1997 and $296.2 improved profitability as of the book values of debt less cash and marketable securities in 1996. Common stock dividend well as effectiveness in [“net debt”] to net debt plus equity) increased to 55% during payments increased to $1.10 per managing capital. 1998 from 53% in 1997. The ratio had decreased in 1997 from share in 1998 from $1.06 per share 58% in 1996. The increase in 1998 was primarily the result of in 1997 and $.94 per share in 1996. The Series B Preference increased borrowings related to stock repurchases offset partially Stock dividends were declared and paid at the stated rate of by operating cash flow. $4.88 per share in all three years. 1998 1997 1996 Internally generated cash flows appear to be adequate to sup- Capital Expenditures port currently planned business operations, acquisitions and North America $ 90.1 $114.2 $119.8 capital expenditures. Significant acquisitions would require external Latin America 99.2 105.2 86.1 financing. Europe 83.7 104.6 107.3 Asia/Africa 80.5 104.9 85.6 The Company is a party to various superfund and other envi- Total Oral, Personal and ronmental matters and is contingently liable with respect to law- Household Care 353.5 428.9 398.8 suits, taxes and other matters arising out of the normal course of Total Pet Nutrition 20.7 29.8 45.4 business. Management proactively reviews and manages its expo- Total Corporate 15.4 19.8 14.8 sure to, and the impact of, environmental matters. While it is pos- Total Capital Expenditures $389.6 $478.5 $459.0 sible that the Company’s cash flows and results of operations in Depreciation and Amortization particular quarterly or annual periods could be affected by the North America $ 95.6 $ 87.1 $ 77.1 Latin America 75.6 70.2 77.4 one-time impacts of the resolution of such contingencies, it is the Europe 67.9 68.0 71.0 opinion of management that the ultimate disposition of these mat- Asia/Africa 42.1 45.4 43.8 ters, to the extent not previously provided for, will not have a mate- Total Oral, Personal and rial impact on the Company’s financial condition or ongoing cash Household Care 281.2 270.7 269.3 flows and results of operations. Total Pet Nutrition 32.5 32.1 30.1 Total Corporate 16.6 17.1 16.9 Total Depreciation and Amortization $330.3 $319.9 $316.3

3 Colgate’s Growing Success Dollars in Millions Except Per Share Amounts

Status of Restructuring Reserve market risk of such instruments should not be construed as an In September 1995, a reserve of $460.5 was established to endorsement of their accuracy or the accuracy of the related cover a worldwide restructuring of manufacturing and administra- assumptions. The Company utilizes a Value-at-Risk (VAR) model tive operations. The primary elements of the reserve related to and an Earnings-at-Risk (EAR) model that are intended to measure employee termination costs and expenses associated with the the maximum potential loss in its interest rate and foreign realignment of the Company’s global manufacturing operations, exchange financial instruments assuming adverse market condi- as well as settlement of contractual obligations. The costs of tions occur, given a 95% confidence level. The models utilize a vari- completing the restructuring activities to date approximated the ance/covariance modeling technique. Historical interest rates and original estimate. As planned, the restructuring has produced foreign exchange rates from the preceding year are used to esti- savings that increase pretax earnings by over $150 annually. mate the volatility and correlation of future rates. The estimated The planned restructuring projects, primarily in North America maximum potential one-day loss in fair value of interest rate or for- and Europe but also affecting Hill’s Pet Nutrition and Colgate loca- eign exchange rate instruments, calculated using the VAR model, tions in Asia/Africa and certain Latin America locations, are sub- is not material to the consolidated financial position, results of stantially completed. The remaining reserve amount of $39.6 operations or cash flows of the Company. The estimated maximum primarily covers the reconfiguring of two factories in Asia/Africa yearly loss in earnings due to interest rate or foreign exchange rate and the consolidation of administrative operations following the instruments, calculated utilizing the EAR model, is not material to implementation of SAP computer systems and related process the Company’s results of operations. Actual results in the future changes in Europe and Asia/Africa. All remaining projects will be may differ materially from these projected results due to actual completed in 1999. The financing for remaining cash require- developments in the global financial markets. ments will come from operations. A discussion of the Company’s accounting policies for financial instruments is included in the Summary of Significant Accounting Managing Foreign Currency and Interest Rate Exposure Policies in the Notes to the Consolidated Financial Statements, The Company is exposed to market risk from foreign currency and further disclosure relating to financial instruments is included exchange rate fluctuations and interest rates. To manage the in the Fair Value of Financial Instruments note. volatility relating to foreign currency exposures on a consolidated basis, the Company utilizes a number of techniques, including Year 2000 Update selective borrowings in local currencies, purchases of forward for- The Company has developed plans to address the possible expo- eign currency exchange contracts, balance sheet management sures related to the year 2000 on the Company’s internal systems and increases in selling prices. and equipment. In the critical area of internal operating systems, The Company operates in over 200 countries and territories in 1994 the Company decided to convert its worldwide business and is exposed to currency fluctuation related to manufacturing systems to SAP, which is year 2000 compliant. The Company’s and selling its products in currencies other than the U.S. dollar. conversion to SAP is progressing on schedule, with conversion in The major foreign currency exposures involve the markets in operations representing over 70% of the Company’s global busi- Mexico, Brazil and France, each of which represents individually ness to be complete by mid-year 1999. When completed, the 6% to 8% of worldwide sales. Each of the other countries’ opera- Company’s investment in SAP systems will cumulatively total tions represent less than 4% of worldwide sales. In the countries approximately $430, half of which will be capitalized and the of Mexico, Brazil and France during the three-year period from remainder expensed as incurred. The computer systems and 1996 to 1998, the combination of selling price increases and embedded microprocessors and control systems in all operations cost containment measures have more than offset the impact of are planned to be made compliant by June 30, 1999. foreign currency rate movements resulting in increased gross The Company is also in discussions with suppliers and cus- profit margins during the periods presented. tomers to assess the potential impact on operations in the event The Company utilizes simple instruments such as interest rate their systems are not made compliant. swaps to manage the Company’s mix of fixed and floating rate The first two phases of the year 2000 project plan — forming debt. The Company’s target floating rate obligations as a percent- teams at the corporate, division and subsidiary levels worldwide, age of the Company’s global debt is set by policy. As a matter of and the inventory of systems and equipment — were complete at policy, the Company does not speculate in financial markets and July 31, 1998. The third phase, risk assessment and contingency therefore does not hold or issue derivative financial instruments planning, is substantially complete with respect to all internal for trading purposes. computing systems and embedded chips and is under way with respect to critical external business partners. Value at Risk The fourth phase, planned to be substantially completed The Company’s risk management procedures include the monitor- by the end of the first quarter of 1999, will be to accomplish ing of interest rate and foreign exchange exposures and the Com- systems testing, remediation and contingency plans regarding pany’s offsetting hedge positions utilizing analytical analysis of critical systems and equipment with a high risk assessment. cash flows, market value, sensitivity analysis and value-at-risk Contingency planning for suppliers includes backup procedures estimations. However, the use of these techniques to quantify the and processes, alternative suppliers and increases in inventory

Colgate’s Growing Success 4 Dollars in Millions Except Per Share Amounts levels. Review of data interface capability of key business part- During 1998, as required by generally accepted accounting ners and all remaining internal testing and plan implementation principles, the Company ceased to account for its Brazilian are scheduled to be substantially completed by mid-year 1999 in operations as highly inflationary as historical inflation levels had the fifth phase of the project. Progress against project plan time- fallen sharply. However, since the close of 1998, the Brazilian lines is monitored through a system of internal reporting and is currency has devalued sharply. Based on management’s best esti- presented to senior management and the Audit Committee of mates and events to date, this devaluation will result in a charge the Board of Directors or the full Board on a frequent basis. to cumulative translation adjustments of approximately $250 to The Company currently estimates that the total incremental be recognized in 1999 which will be, in effect, a write-down of our cost, including external contractor costs, costs to modify existing foreign-currency-denominated assets (primarily goodwill and prop- systems and costs of internal resources dedicated to preparing erty, plant and equipment). This will be accompanied by lower for the year 2000, to be approximately $30, of which 40% has amortization and depreciation expense in future periods. The been spent to date. These costs are charged to expense as Company remains cautious on the outlook for operations in Brazil incurred and are incremental to the above noted investment in in 1999. Management expects that the net impact on 1999 SAP systems which were previously planned and in the process results of operations will be a reduction of net income of approxi- of being implemented. mately $20 to $25, primarily in the first quarter. In addition, effec- The Company is taking steps to prevent major interruptions in tive January 1999, the Company’s operations in Mexico will no the business related to year 2000 issues. The effect, if any, if the longer be accounted for as highly inflationary. The effect of this Company, its suppliers or the public sector is not fully year 2000 change on future results of operations is not determinable. compliant is not reasonably estimable. The Company believes, The Company expects the continued success of Colgate Total however, that the successful completion of its year 2000 project toothpaste, using patented proprietary technology, to bolster will significantly reduce the risk of a major business interruption worldwide Oral Care leadership and expects new products in all due to year 2000 failures. other categories to add potential for further growth. Overall, sub- ject to global economic conditions, the Company does not expect Conversion to the Euro Currency the 1999 market conditions to be materially different from those On January 1, 1999, certain member countries of the European experienced in 1998 and the Company expects its positive Union established fixed conversion rates between their existing momentum to continue. Historically, the consumer products currencies and adopted the euro as their new common legal industry has been less susceptible to changes in economic currency. As of that date, the euro began trading on currency growth than many other industries, and therefore the Company exchanges and the legacy currencies were to remain legal tender constantly evaluates projects that will focus operations on in the participating countries for a transition period between opportunities for enhanced growth potential. Over the long term, January 1, 1999 and January 1, 2002. Colgate’s continued focus on its consumer products business and The Company is addressing most of the issues involved with the strength of its global brand names, its broad international the introduction of the euro through its worldwide conversion to presence in both developed and developing markets, and its the SAP system. The more important issues facing the Company strong capital base all position the Company to take advantage include reassessing currency risk and processing tax and of growth opportunities and to continue to increase profitability accounting records. and shareholder value. Based upon progress to date, the Company believes that use of the euro will not have a significant impact on the manner in Forward-Looking Statements which it conducts its business affairs and processes its business Readers are cautioned that the Results of Operations and other and accounting records. Accordingly, conversion to the euro is not sections of this report contain forward-looking statements that expected to have a material effect on the Company’s financial are based on management’s estimates, assumptions and projec- condition, cash flows or results of operations. tions. A description of some of the factors that could cause actual results to differ materially from expectations expressed in the Outlook Company’s forward-looking statements set forth in the Company’s Looking forward into 1999, the Company is well positioned for Form 8-K filed with the Securities and Exchange Commission on strong growth in most of its markets, particularly North America November 13, 1998 under the caption “Cautionary Statement on and Western Europe. However, movements in foreign currency Forward-Looking Statements,” is incorporated herein by reference. exchange rates can impact future operating results as measured These factors include, but are not limited to, the risks associated in U.S. dollars. In particular, recent economic turmoil in Brazil and with international operations, the activities of competitors, retail continued economic uncertainty in Asia may impact the overall trade practices, the success of new product introductions, cost results of Latin America and Asia/Africa. Projected growth in pressures, manufacturing and environmental matters. these parts of the world may be tempered until these economies become more stable.

5 Colgate’s Growing Success The management of Colgate-Palmolive Company has prepared the The Company has retained Arthur Andersen LLP, independent accompanying consolidated financial statements and is responsi- public accountants, to examine the financial statements. Their ble for their content as well as other information contained in this accompanying report is based on an examination conducted in annual report. These financial statements have been prepared in accordance with generally accepted auditing standards, which accordance with generally accepted accounting principles and includes a review of the Company’s systems of internal control as necessarily include amounts which are based on management’s well as tests of accounting records and procedures sufficient to best estimates and judgments. enable them to render an opinion on the Company’s financial The Company maintains a system of internal accounting con- statements. trol designed to be cost-effective while providing reasonable The Audit Committee of the Board of Directors is composed assurance that assets are safeguarded and that transactions are entirely of non-employee directors. The Committee meets periodi- executed in accordance with management’s authorization and are cally and independently throughout the year with management, properly recorded in the financial records. Internal control effec- internal auditors and the independent accountants to discuss the tiveness is supported through written communication of policies Company’s internal accounting controls, auditing and financial and procedures, careful selection and training of personnel, and reporting matters. The internal auditors and independent accoun- audits by a professional staff of internal auditors. The Company’s tants have unrestricted access to the Audit Committee. control environment is further enhanced through a formal Code of Conduct which sets standards of professionalism and integrity for employees worldwide. Reuben Mark Stephen C. Patrick Chairman and Chief Financial Officer Chief Executive Officer

Report of Independent Public Accountants

To the Board of Directors and Shareholders of In our opinion, the financial statements referred to above pre- Colgate-Palmolive Company: sent fairly, in all material respects, the financial position of Colgate- Palmolive Company and subsidiaries as of December 31, 1998 We have audited the accompanying consolidated balance sheets and 1997,and the results of their operations and their cash flows of Colgate-Palmolive Company (a Delaware corporation) and sub- for each of the three years in the period ended December 31, sidiaries as of December 31, 1998 and 1997,and the related 1998, in conformity with generally accepted accounting principles. consolidated statements of income, retained earnings, compre- Our audit was made for the purpose of forming an opinion on hensive income and changes in capital accounts, and cash flows the basic financial statements taken as a whole. The schedules for each of the three years in the period ended December 31, listed in the index to financial statements are presented for pur- 1998. These financial statements and the schedules referred to poses of complying with the Securities and Exchange Commis- below are the responsibility of the Company’s management. Our sion’s rules and are not part of the basic financial statements. responsibility is to express an opinion on these financial state- These schedules have been subjected to the auditing procedures ments and schedules based on our audits. applied in the audit of the basic financial statements and, in our We conducted our audits in accordance with generally opinion, fairly state in all material respects the financial data accepted auditing standards. Those standards require that we required to be set forth therein in relation to the basic financial plan and perform the audit to obtain reasonable assurance about statements taken as a whole. whether the financial statements are free of material misstate- ment. An audit includes examining, on a test basis, evidence sup- porting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used New York, New York and significant estimates made by management, as well as evalu- February 2, 1999 ating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

Colgate’s Growing Success 6 Dollars in Millions Except Per Share Amounts Consolidated Statements of Income

1998 1997 1996

Net sales $8,971.6 $9,056.7 $8,749.0 Cost of sales 4,290.3 4,461.5 4,451.1 Gross profit 4,681.3 4,595.2 4,297.9

Selling, general and administrative expenses 3,197.1 3,237.0 3,052.1 Other expense, net 61.2 72.4 93.8 Interest expense, net 172.9 183.5 197.4

Income before income taxes 1,250.1 1,102.3 954.6 Provision for income taxes 401.5 361.9 319.6 Net income $ 848.6 $ 740.4 $ 635.0

Earnings per common share, basic $ 2.81 $ 2.44 $ 2.09

Earnings per common share, diluted $ 2.61 $ 2.27 $ 1.96

Net Income Net Profit Margin Charts: Reflecting growing $848.6 $850 11% productivity, net income $740.4 9.5% in 1998 increased 15% to 700 9 $635.0 a record $848.6. It also set 8.2% a record as a percentage 550 7 7.3% of sales, or net profit 400 5 margin.

0 0 96 97 98 96 97 98 ($ millions) (% to sales)

See Notes to Consolidated Financial Statements.

7 Colgate’s Growing Success Dollars in Millions Except Per Share Amounts Consolidated Balance Sheets

1998 1997

Assets Current Assets Cash and cash equivalents $ 181.7 $ 183.1 Marketable securities 12.8 22.2 Receivables (less allowances of $35.9 and $35.8, respectively) 1,085.6 1,037.4 Inventories 746.0 728.4 Other current assets 218.8 225.4 Total current assets 2,244.9 2,196.5

Property, plant and equipment, net 2,589.2 2,441.0 Goodwill and other intangibles, net 2,524.1 2,585.3 Other assets 327.0 315.9 $7,685.2 $7,538.7 Liabilities and Shareholders’ Equity Current Liabilities Notes and loans payable $ 175.3 $ 158.4 Current portion of long-term debt 281.6 178.3 Accounts payable 726.1 716.9 Accrued income taxes 74.2 67.0 Other accruals 857.2 838.9 Total current liabilities 2,114.4 1,959.5

Long-term debt 2,300.6 2,340.3 Deferred income taxes 448.0 284.5 Other liabilities 736.6 775.8

Shareholders’ Equity Preferred stock 376.2 385.3 Common stock, $1 par value (1,000,000,000 shares authorized, 366,426,590 shares issued) 366.4 366.4 Additional paid-in capital 1,191.1 1,027.4 Retained earnings 3,641.0 3,138.0 Cumulative translation adjustments (799.8) (693.7) 4,774.9 4,223.4 Unearned compensation (355.5) (364.5) Treasury stock, at cost (2,333.8) (1,680.3) Total shareholders’ equity 2,085.6 2,178.6 $7,685.2 $7,538.7

See Notes to Consolidated Financial Statements.

Colgate’s Growing Success 8 Dollars in Millions Except Per Share Amounts Consolidated Statements of Retained Earnings, Comprehensive Income and Changes in Capital Accounts

Additional Cumulative Compre- Common Shares Paid-inTreasury Shares Retained Translation hensive Shares Amount Capital Shares Amount Earnings Adjustment Income

Balance, January 1, 1996 291,707,744 $366.4 $ 850.5 74,718,846 $1,441.8 $2,392.2 $(513.0) Net income 635.0 $635.0 Other comprehensive income: Cumulative translation adjustment (21.7) (21.7) Total comprehensive income $613.3 Dividends declared: Series B Convertible Preference Stock, net of income taxes (20.9) Preferred stock (.5) Common stock (274.8) Shares issued for stock options 2,206,216 44.4 (2,206,216) 22.0 Treasury stock acquired (688,800) 688,800 27.4 Other 1,042,476 23.5 (1,042,476) (22.4) Balance, December 31, 1996 294,267,636 $366.4 $ 918.4 72,158,954 $1,468.8 $2,731.0 $(534.7)

Net income 740.4 $740.4 Other comprehensive income: Cumulative translation adjustment (159.0) (159.0) Total comprehensive income $581.4 Dividends declared: Series B Convertible Preference Stock, net of income taxes (20.6) Preferred stock (.5) Common stock (312.3) Shares issued for stock options 3,163,141 64.2 (3,163,141) 54.4 Treasury stock acquired (2,795,926) 2,795,926 175.1 Other 767,844 44.8 (767,844) (18.0) Balance, December 31, 1997 295,402,695 $366.4 $1,027.4 71,023,895 $1,680.3 $3,138.0 $(693.7)

Net income 848.6 $848.6 Other comprehensive income: Cumulative translation adjustment (106.1) (106.1) Total comprehensive income $742.5 Dividends declared: Series B Convertible Preference Stock, net of income taxes (20.4) Preferred stock (.5) Common stock (324.7) Shares issued for stock options 3,357,425 129.0 (3,357,425) 145.1 Treasury stock acquired (7,149,456) 7,149,456 542.5 Other 1,099,076 34.7 (1,099,076) (34.1) Balance, December 31, 1998 292,709,740 $366.4 $1,191.1 73,716,850 $2,333.8 $3,641.0 $(799.8)

See Notes to Consolidated Financial Statements.

9 Colgate’s Growing Success Dollars in Millions Except Per Share Amounts Consolidated Statements of Cash Flows

1998 1997 1996

Operating Activities Net income $ 848.6 $ 740.4 $ 635.0 Adjustments to reconcile net income to net cash provided by operations: Restructured operations (34.8) (48.5) (105.6) Depreciation and amortization 330.3 319.9 316.3 Income taxes and other, net 60.7 18.5 13.2 Cash effects of changes in: Receivables (15.2) (61.6) (15.4) Inventories (19.5) (50.9) (1.2) Payables and accruals 8.7 180.0 75.1 Net cash provided by operations 1,178.8 1,097.8 917.4 Investing Activities Capital expenditures (389.6) (478.5) (459.0) Payment for acquisitions, net of cash acquired (22.6) (31.5) (59.3) Sale of non-core product lines 57.4 96.4 25.1 Sale of marketable securities and investments 18.7 68.5 1.2 Other (15.8) 7.7 (12.0) Net cash used for investing activities (351.9) (337.4) (504.0) Financing Activities Principal payments on debt (677.5) (670.7) (1,164.6) Proceeds from issuance of debt 762.9 350.4 1,077.4 Dividends paid (345.6) (333.4) (296.2) Purchase of common stock (542.5) (175.1) (27.4) Other (27.3) 15.8 39.2 Net cash used for financing activities (830.0) (813.0) (371.6) Effect of exchange rate changes on cash and cash equivalents 1.7 (12.5) (2.4) Net (decrease) increase in cash and cash equivalents (1.4) (65.1) 39.4 Cash and cash equivalents at beginning of year 183.1 248.2 208.8 Cash and cash equivalents at end of year $ 181.7 $ 183.1 $ 248.2 Supplemental Cash Flow Information Income taxes paid $ 273.8 $ 261.3 $ 273.0 Interest paid 202.8 230.6 229.1 Principal payments on ESOP debt, guaranteed by the Company 6.1 5.5 5.0

See Notes to Consolidated Financial Statements.

Colgate’s Growing Success 10 Dollars in Millions Except Per Share Amounts Notes to Consolidated Financial Statements

1. Nature of Operations Use of Estimates The Company manufactures and markets a wide variety of prod- The preparation of financial statements in conformity with gener- ucts in the U.S. and around the world in two distinct business ally accepted accounting principles requires management to segments: Oral, Personal and Household Care, and Pet Nutrition. make estimates and assumptions that affect the reported Oral, Personal and Household Care products include toothpaste, amounts of assets and liabilities and disclosure of contingent oral rinses and toothbrushes, bar and liquid soaps, shampoos, gains and losses at the date of the financial statements and the conditioners, deodorants and antiperspirants, baby and shave reported amounts of revenues and expenses during the reporting products, laundry and dishwashing detergents, fabric softeners, period. Actual results could differ from those estimates. cleansers and cleaners, bleaches and other similar items. These products are sold primarily to wholesale and retail distributors Accounting Changes worldwide. Pet Nutrition products include pet food products manu- In 1997,the Financial Accounting Standards Board (FASB) factured and marketed by Hill’s Pet Nutrition. The principal cus- issued Statement No. 130, “Reporting Comprehensive Income.” tomers for Pet Nutrition products are veterinarians and specialty The Company adopted this statement as of January 1, 1998, pet retailers. Principal global trademarks include Colgate, Palmo- and, accordingly, disclosures were expanded to include the live, Mennen, Protex, Ajax, Soupline, Suavitel, Fab, Science Diet Consolidated Statement of Retained Earnings, Comprehensive and Prescription Diet in addition to various regional trademarks. Income and Changes in Capital Accounts. There was no impact The Company’s principal classes of products accounted for the on the Company’s financial position, results of operations or following percentages of worldwide sales for the past three years: cash flows. The Company also adopted FASB Statements No. 131 and No. 132, which revised reporting and disclosures as to operating segments, pension and other postretirement benefits. Prior years’ 22% 23% 24% information has been restated to conform to the requirements of 30% 31% 32% 16% the new statements. 16% 16% In June 1998, the FASB issued Statement No. 133, “Account- 10% 18% 11% 16% 11% 15% ing for Derivative Instruments and Hedging Activities.” The state- 11% 1996 1997 1998 ment establishes accounting and reporting standards requiring

Oral Care that every derivative instrument be recorded in the balance sheet Personal Care Household Surface Care as either an asset or liability measured at its fair value. The state- Fabric Care Pet Nutrition ment requires that changes in the derivative’s fair value be recog- Other nized currently in earnings unless specific hedge accounting criteria are met. Statement No. 133 will be effective, prospec- 2. Summary of Significant Accounting Policies tively, for the Company’s financial statements in the year 2000. Principles of Consolidation The statement is not expected to have a material impact on the The Consolidated Financial Statements include the accounts of Company’s financial position, results of operations or cash flows. Colgate-Palmolive Company and its majority-owned subsidiaries. During 1998, as required by generally accepted accounting Intercompany transactions and balances have been eliminated. principles, the Company ceased to account for its Brazilian opera- Investments in companies in which the Company’s interest is tions as highly inflationary as historical inflation levels had fallen between 20% and 50% are accounted for using the equity sharply. The effect of this change was to reduce shareholders’ method. The Company’s share of the net income from such invest- equity by $98.4, primarily related to the recognition of deferred ments is recorded as equity earnings and is classified as Other tax benefits expected to be realized in the future. However, since expense, net in the Consolidated Statements of Income. the close of 1998, the Brazilian currency has devalued sharply. Based on management’s best estimates and events to date, this Revenue Recognition devaluation will result in a charge to cumulative translation adjust- Sales are recorded at the time products are shipped to trade ments of approximately $250 to be recognized in 1999 which will customers. Net sales reflect units shipped at selling list prices be, in effect, a write-down of our foreign-currency-denominated reduced by promotion allowances. assets (primarily goodwill and property, plant and equipment). This will be accompanied by lower amortization and depreciation expense in future periods. The Company remains cautious on the outlook for operations in Brazil in 1999.

11 Colgate’s Growing Success Dollars in Millions Except Per Share Amounts

Cash and Cash Equivalents into U.S. dollars at average rates of exchange prevailing during The Company considers all highly liquid investments with matur- the year. ities of three months or less when purchased to be cash equiva- For subsidiaries operating in highly inflationary environments, lents. Investments in short-term securities that do not meet inventories, goodwill, and property, plant and equipment are the definition of cash equivalents are classified as marketable translated at the rate of exchange on the date the assets were securities. Marketable securities are reported at cost, which acquired, while other assets and liabilities are translated at year- approximates market. end exchange rates. Translation adjustments for these operations are included in net income. Inventories Inventories are valued at the lower of cost or market. The first-in, Financial Instruments first-out (FIFO) method is used to value most inventories. The The net effective cash payment of the interest rate swap con- remaining inventories are valued using the last-in, first-out (LIFO) tracts combined with the related interest payments on the debt method. that they hedge are accounted for as interest expense. Those interest rate instruments that do not qualify as hedge instru- Property, Plant and Equipment ments for accounting purposes are marked to market and Land, buildings, and machinery and equipment are stated at cost. recorded at fair value. Depreciation is provided, primarily using the straight-line method, Gains and losses from foreign exchange contracts that hedge over estimated useful lives ranging from 3 to 40 years. the Company’s investments in its foreign subsidiaries are shown in the cumulative translation adjustments account included in Goodwill and Other Intangibles shareholders’ equity. Gains and losses from contracts that hedge Intangible assets principally consist of goodwill, which is amor- firm commitments are recorded in the balance sheets as a com- tized on the straight-line method, generally over a period of 40 ponent of the related receivable or payable until realized, at which years. Other intangible assets, principally non-compete agree- time they are recognized in the statements of income. The con- ments and customer lists, are amortized on the straight-line tracts that hedge anticipated sales and purchases do not qualify method over periods ranging from 5 to 20 years depending on as hedges for accounting purposes. Accordingly, the related gains their useful lives. and losses are calculated using the current forward rates and are The recoverability of the carrying values of intangible assets is recorded in the Consolidated Statements of Income as Other evaluated periodically based on a review of forecasted operating expense, net. cash flows and the profitability of the related business. For the three-year period ended December 31, 1998, there were no mate- Segment Information rial adjustments to the carrying values of intangible assets result- The Company operates in two product segments: Oral, Personal ing from these evaluations. and Household Care, and Pet Nutrition. The operations of the Oral, Personal and Household Care segment are managed geographi- Advertising cally in four reportable operating segments: North America, Latin Advertising costs are expensed in the year incurred. America, Europe and Asia/Africa. Management measures segment profit as operating income, Income Taxes which is defined as income before interest expense and income Deferred taxes are recognized for the expected future tax conse- taxes. The accounting policies of the operating segments are the quences of temporary differences between the amounts carried same as those described in the summary of significant account- for financial reporting and tax purposes. Provision is made cur- ing policies. Corporate operations include research and develop- rently for taxes payable on remittances of overseas earnings; no ment costs, unallocated overhead costs, and gains and losses provision is made for taxes on overseas retained earnings that on sales of non-strategic brands and assets. Corporate assets are deemed to be permanently reinvested. include primarily real estate and benefit plan assets. The financial and descriptive information on the Company’s Translation of Overseas Currencies geographic area and industry segment data, appearing in the The assets and liabilities of subsidiaries, other than those tables contained in the Results of Operations, is an integral part operating in highly inflationary environments, are translated into of these financial statements. U.S. dollars at year-end exchange rates, with resulting translation gains and losses accumulated in a separate component of shareholders’ equity. Income and expense items are converted

Colgate’s Growing Success 12 Dollars in Millions Except Per Share Amounts

Reclassifications short-term borrowings, excluding amounts reclassified, as of Certain prior year balances have been reclassified to conform December 31, 1998 and 1997,was 6.2% and 8.5%, respectively. with current year presentation. The Company’s long-term debt agreements include various restrictive covenants and require the maintenance of certain 3. Acquisitions and Divestitures defined financial ratios with which the Company is in compliance. During 1998, 1997 and 1996, the Company made several acqui- sitions totaling $22.6, $20.3 and $38.5, respectively. Individually, 5. Capital Stock and Stock Compensation Plans none of these acquisitions were significant. Preferred Stock The acquisitions were accounted for as purchases, and, Preferred Stock consists of 250,000 authorized shares without accordingly, the purchase prices were allocated to the net tangible par value. It is issuable in series, of which one series of 122,620 and intangible assets acquired based on estimated fair values shares, designated $4.25 Preferred Stock, with a stated and at the dates the acquisitions were consummated. The results of redeemable value of $100 per share, has been issued and is operations of the acquired businesses have been included in the outstanding. The $4.25 Preferred Stock is redeemable only at Consolidated Financial Statements since the respective acquisi- the option of the Company. tion dates. The inclusion of pro forma financial data for all acquisi- tions would not have materially affected the financial information Preference Stock included herein. In 1988, the Company authorized the issuance of 50,000,000 The aggregate sale price of all 1998, 1997 and 1996 divesti- shares of Preference Stock, without par value. The Series B Con- tures was $57.4,$101.4 and $25.1, respectively. In 1998, the vertible Preference Stock, which is convertible into four shares HandiWipes brand and related assets were sold for $53.0, and in of common stock, ranks junior to all series of the Preferred Stock. 1997,the Sterno fuel brand and related assets were sold for $70.0. At December 31, 1998 and 1997,5,598,808 and 5,734,940 shares of Series B Convertible Preference Stock, respectively, 4. Long-Term Debt and Credit Facilities were outstanding and issued to the Company’s Employee Stock Long-term debt consists of the following at December 31: Ownership Plan.

Weighted Average Shareholder Rights Plan Interest Rate Maturities 1998 1997 On October 23, 1998, the Board of Directors adopted a new Notes 7.1% 1999-2030 $1,382.4 $1,186.6 Shareholder Rights Plan to replace its previous plan, which Commercial paper and other short-term expired October 24, 1998, with a comparable plan. Under the borrowings, reclassified 5.2 1999 461.2 607.5 Plan each share of the Company’s common stock carries with it ESOP notes, guaranteed one Preference Share Purchase Right (“Rights”). The Rights them- by the Company 8.7 2001-2009 373.6 379.7 selves will at no time have voting power or pay dividends. The Payable to banks 5.5 2000-2004 361.8 339.2 Capitalized leases 3.2 5.6 Rights become exercisable only if a person or group acquires 15% 2,582.2 2,518.6 or more of the Company’s common stock or announces a tender Less: current portion of offer, the consummation of which would result in ownership by a long-term debt 281.6 178.3 person or group of 15% or more of the common stock. When exer- $2,300.6 $2,340.3 cisable, each Right entitles a holder to buy one one-hundredth of a share of a new series of preference stock at an exercise price Commercial paper and certain other short-term borrowings are of $440.00, subject to adjustment. classified as long-term debt as it is the Company’s intent and abil- If the Company is acquired in a merger or other business com- ity to refinance such obligations on a long-term basis. Scheduled bination, each Right will entitle a holder to buy, at the Right’s maturities of debt outstanding at December 31, 1998, excluding then current exercise price, a number of the acquiring company’s short-term borrowings reclassified, are as follows: 1999 — $281.6; common shares having a market value of twice such price. In 2000 — $411.8; 2001 — $109.5; 2002 — $159.7; 2003 — $266.5, addition, if a person or group acquires 15% or more of the Com- and $891.9 thereafter. The Company has entered into interest pany’s common stock, each Right will entitle its holder (other rate swap agreements and foreign exchange contracts related to than such person or members of such group) to purchase, at the certain of these debt instruments (see Note 11). Right’s then current exercise price, a number of shares of the At December 31, 1998, the Company had unused credit facili- Company’s common stock having a market value of twice the ties amounting to $1,670.9. Commitment fees related to credit Right’s exercise price. facilities are not material. The weighted average interest rate on

13 Colgate’s Growing Success Dollars in Millions Except Per Share Amounts

Further, at any time after a person or group acquires 15% or the Company receiving 321,331 shares, which were recorded as more (but less than 50%) of the Company’s common stock, the treasury stock. Board of Directors may, at its option, exchange part or all of the Rights (other than Rights held by the acquiring person or group) Incentive Stock Plan for shares of the Company’s common stock on a one-for-one The Company has a plan which provides for grants of restricted basis. stock awards for officers and other executives of the Company The Company, at the option of its Board of Directors, may and its major subsidiaries. A committee of non-employee amend the Rights or redeem the Rights for $.01 at any time members of the Board of Directors administers the plan. During before the acquisition by a person or group of beneficial owner- 1998 and 1997,285,077 and 335,270 shares, respectively, ship of 15% or more of its common stock. The Board of Directors were awarded to employees in accordance with the provisions is also authorized to reduce the 15% threshold to not less than of the plan. 10%. Unless redeemed earlier, the Rights will expire on October 31, 2008. Stock Option Plans The Company’s Stock Option Plans (“Plans”) provide for the Stock Repurchases issuance of non-qualified stock options to officers and key During 1998, the Company entered into a series of forward pur- employees. Options are granted at prices not less than the fair chase agreements on its common stock. These agreements are market value on the date of grant. At 1998 year-end, 17,286,622 settled on a net basis in shares of the Company’s common stock. shares of common stock were available for future grants. To the extent that the market price of the Company’s common The Plans contain an accelerated ownership feature which pro- stock on a settlement date is higher (lower) than the forward pur- vides for the grant of new options when previously owned shares chase price, the net differential is received (paid) by the Company. of Company stock are used to exercise existing options. The num- As of December 31, 1998, agreements were in place covering ber of new options granted under this feature is equal to the approximately $458.6 of the Company’s common stock (5.0 number of shares of previously owned Company stock used to million shares) that had forward prices averaging $91.68 per exercise the original options and to pay the related required U.S. share. If these agreements were settled based on the December income tax. The new options are granted at a price equal to the 31, 1998 market price of the Company’s common stock ($92.88 fair market value on the date of the new grant and have the same per share), the Company would be entitled to receive approxi- expiration date as the original options exercised. mately 64,000 shares. During 1998, settlements resulted in Stock option plan activity is summarized below:

1998 1997 1996

Weighted Average Weighted Average Weighted Average Shares Exercise Price Shares Exercise Price Shares Exercise Price

Options outstanding, January 1 22,767,392 $46 21,415,198 $32 20,991,790 $29 Granted 6,268,644 78 7,703,057 73 5,709,222 41 Exercised (7,458,754) 44 (6,095,277) 32 (5,114,564) 29 Canceled or expired (184,159) 42 (255,586) 38 (171,250) 31 Options outstanding, December 31 21,393,123 56 22,767,392 46 21,415,198 32 13,344,382 $46 14,683,179 $38 13,983,844 $29

The following table summarizes information relating to currently outstanding and exercisable options as of December 31, 1998:

Weighted Average Range of Remaining Contractual Options Weighted Average Options Weighted Average Exercise Prices Life In Years Outstanding Exercise Price Exercisable Exercise Price

$11.44 – $ 21.28 1 1,163,047 $15 1,163,047 $15 $25.03 – $ 34.34 5 4,771,853 31 4,771,853 31 $34.38 – $ 44.47 6 3,655,279 40 2,731,609 40 $44.56 – $ 62.16 7 3,503,605 58 1,871,727 54 $62.44 – $ 79.38 9 4,009,582 70 1,138,721 73 $79.47 – $106.04 6 4,289,757 94 1,667,425 94 6 21,393,123 $56 13,344,382 $46

Colgate’s Growing Success 14 Dollars in Millions Except Per Share Amounts

The Company applies Accounting Principles Board Opinion 1,528,450 shares were allocated to participant accounts. Each No. 25, “Accounting for Stock Issued to Employees,” and related allocated share may be converted by the trustee into four com- interpretations in accounting for options granted under the Plans. mon shares but preferred shares generally convert only after the Accordingly, no compensation expense has been recognized. Had employee ceases to work for the Company. compensation expense been determined based on the Black- Dividends on these preferred shares are deductible for Scholes option pricing model value at the grant date for awards income tax purposes and, accordingly, are reflected net of their in 1998, 1997 and 1996 consistent with the provisions of State- tax benefit in the Consolidated Statements of Retained Earnings, ment of Financial Accounting Standards No. 123, “Accounting for Comprehensive Income and Changes in Capital Accounts. Stock-Based Compensation” (SFAS 123), the Company’s net Annual expense related to the leveraged ESOP, determined income, basic earnings per common share and diluted earnings as interest incurred on the notes, less employee contributions per common share would have been $803.5, $2.65 per share and dividends received on the shares held by the ESOP, plus the and $2.49 per share, respectively, in 1998; $716.1, $2.35 per higher of either principal repayments on the notes or the cost of share and $2.19 per share, respectively, in 1997; and $621.7, shares allocated, was $2.4 in 1998, $3.0 in 1997 and $3.9 in $2.05 per share and $1.92 per share, respectively, in 1996. 1996. Similarly, unearned compensation, shown as a reduction The weighted average Black-Scholes value of grants issued in shareholders’ equity, is reduced by the higher of principal in 1998, 1997 and 1996 was $12.47,$7.85 and $5.40,respec- payments or the cost of shares allocated. tively. The Black-Scholes value of each option granted is esti- Interest incurred on the ESOP’s notes amounted to $32.5 in mated using the Black-Scholes option pricing model with the 1998, $33.0 in 1997 and $33.5 in 1996. The Company paid following assumptions: option term until exercise ranging from 2 dividends on the stock held by the ESOP of $29.3 in 1998, $29.8 to 7 years, volatility ranging from 17% to 30%, risk-free interest in 1997 and $31.1 in 1996. Company contributions to the ESOP rate ranging from 5.0% to 6.2% and an expected dividend yield were $0 in 1998, $1.0 in 1997 and $4.1 in 1996. Employee of 2.5%. The Black-Scholes model used to determine the option contributions to the ESOP were $9.4 in 1998, $8.2 in 1997 and values shown above was developed to estimate the fair value of $5.9 in 1996. short-term freely tradable, fully transferable options without vest- ing restrictions and was not designed to value reloads, all of 7. Retirement Plans and Other Retiree Benefits which significantly differ from the Company’s stock option awards. Retirement Plans The value of this model is also limited by the inclusion of highly The Company, its U.S. subsidiaries and some of its overseas subjective assumptions which greatly affect calculated values. subsidiaries maintain defined benefit retirement plans covering substantially all of their employees. Benefits are based primarily 6. Employee Stock Ownership Plan on years of service and employees’ career earnings. In the Com- In 1989, the Company expanded its Employee Stock Ownership pany’s principal U.S. plans, funds are contributed to the trusts in Plan (“ESOP”) through the introduction of a leveraged ESOP cover- accordance with regulatory limits to provide for current service ing certain employees who have met certain eligibility require- and for any unfunded projected benefit obligation over a reason- ments. The ESOP issued $410.0 of long-term notes due through able period. To the extent these requirements are exceeded by 2009 bearing an average interest rate of 8.6%. The long-term plan assets, a contribution may not be made in a particular year. notes, which are guaranteed by the Company, are reflected in the Assets of the plans consist principally of common stocks, guaran- accompanying Consolidated Balance Sheets. The ESOP used the teed investment contracts with insurance companies, invest- proceeds of the notes to purchase 6.3 million shares of Series B ments in real estate funds and U.S. Government obligations. Convertible Preference Stock from the Company. The Stock has a Domestic plan assets also include investments in the Company’s minimum redemption price of $65 per share and pays semiannual common stock representing 7% and 6% of plan assets at Decem- dividends equal to the higher of $2.44 or the current dividend ber 31, 1998 and 1997,respectively. paid on four common shares for the comparable six-month period. Dividends on these preferred shares, as well as common Other Retiree Benefits shares also held by the ESOP, are paid to the ESOP trust and, The Company and certain of its subsidiaries provide health care together with contributions, are used by the ESOP to repay princi- and life insurance benefits for retired employees to the extent not pal and interest on the outstanding notes. Preferred shares are provided by government-sponsored plans. The Company utilizes a released for allocation to participants based upon the ratio of the portion of its leveraged ESOP, in the form of future retiree contri- current year’s debt service to the sum of total principal and inter- butions, to reduce its obligation to provide these postretirement est payments over the life of the loan. At December 31, 1998, benefits and offset its current service costs. Postretirement bene- fits otherwise are not currently funded.

15 Colgate’s Growing Success Dollars in Millions Except Per Share Amounts

Summarized information of the Company’s defined benefit retirement plans and postretirement plans are as follows:

Pension Benefits Other Retiree Benefits

1998 1997 1998 1997 1998 1997

North America International

Change in Benefit Obligation Benefit obligation at beginning of year $976.6 $925.7 $ 278.8 $ 271.9 $ 143.7 $ 152.7 Service cost 28.1 24.9 17.7 16.6 (11.0) (7.8) Interest cost 68.9 67.6 18.2 17.6 14.7 13.4 Participant’s contribution 3.3 3.1 9.7 2.3 — — Acquisitions/plan amendments 1.5 .1 4.0 9.4 (3.7) — Actuarial loss/(gain) 7.9 40.8 14.1 13.6 20.0 (6.0) Foreign exchange impact (2.6) (1.6) 4.4 (38.4) — (.2) Benefits paid (85.4) (84.0) (17.3) (14.2) (10.7) (8.4) Benefit obligation at end of year $998.3 $976.6 $ 329.6 $ 278.8 $ 153.0 $ 143.7 Change in Plan Assets Fair value of plan assets at beginning of year $907.3 $842.8 $ 193.4 $ 171.2 $ — $ — Actual return on plan assets 133.1 134.5 18.5 22.7 — — Company contributions 6.9 13.6 16.6 11.9 10.7 8.4 Plan participant contributions 3.3 3.1 9.7 2.3 — — Foreign exchange impact (2.4) (2.7) (10.9) (10.4) — — Acquisitions/plan amendments — — 5.0 9.9 — — Benefits paid (85.4) (84.0) (17.3) (14.2) (10.7) (8.4) Fair value of plan assets at end of year $962.8 $907.3 $ 215.0 $ 193.4 $ — $ — Funded Status Funded status at end of year $ (35.5) $ (69.3) $(114.6) $ (85.4) $(153.0) $(143.7) Unrecognized net transition asset (6.6) (13.6) (2.5) (2.2) — — Unrecognized net actuarial loss/(gain) 19.0 58.7 16.4 1.7 (22.5) (44.3) Unrecognized prior service costs 39.9 44.6 3.9 4.5 (8.3) (2.6) Net amount recognized $ 16.8 $ 20.4 $ (96.8) $ (81.4) $(183.8) $(190.6) Amounts Recognized in Balance Sheet Other assets $ 93.3 $ 83.4 $ 40.9 $ 30.1 $ — $ — Other liabilities (76.5) (63.0) (137.7) (111.5) (183.8) (190.6) Net amount recognized $ 16.8 $ 20.4 $ (96.8) $ (81.4) $(183.8) $(190.6) Weighted Average Assumptions Discount rate 7.25% 7.25% 6.82% 7.47% 7.25% 7.25% Long-term rate of return on plan assets 9.25% 9.25% 8.92% 10.21% — — Long-term rate of compensation increase 5.00% 5.50% 4.44% 4.83% — — ESOP growth rate — — — — 10.00% 10.00%

Pension Benefits Other Retiree Benefits

1998 1997 1996 1998 1997 1996 1998 1997 1996

North America International

Components of Net Periodic Benefit Costs Service cost $ 28.1 $ 24.9 $ 24.5 $ 17.7 $ 16.6 $ 15.1 $ 4.0 $ 2.3 $ 1.7 Interest cost 68.9 67.6 64.4 18.2 17.6 17.5 14.7 13.4 12.6 Annual ESOP allocation — ——— ——(15.0) (10.1) (5.0) Expected return on plan assets (80.8) (77.0) (73.1) (13.9) (14.2) (13.6) — —— Amortization of transition/prior service costs (.9) 1.3 (1.5) .1 .8 3.3 (.6) (.3) (.2) Amortization of actuarial loss/(gain) 1.5 .7 3.8 .5 .4 .7 (1.0) (1.8) (2.0) Net periodic benefit cost $ 16.8 $ 17.5 $ 18.1 $ 22.6 $ 21.2 $ 23.0 $ 2.1 $ 3.5 $ 7.1

Colgate’s Growing Success 16 Dollars in Millions Except Per Share Amounts

The accumulated benefit obligation and fair value of plan In addition, net tax (cost) benefit of $(18.5) in 1998 and $49.2 in assets for the pension plans with accumulated benefit obligtions 1997 were recorded directly through equity. in excess of plan assets were $206.9 and $8.5, respectively, as Differences between accounting for financial statement pur- of December 31, 1998, and $185.6 and $7.2,respectively, as of poses and accounting for tax purposes result in taxes currently December 31, 1997. These amounts represent non-qualified payable being (lower) higher than the total provision for income domestic plans and plans at foreign locations that are primarily taxes as follows: unfunded, as such book reserves equal to the unfunded amount 1998 1997 1996 have been recorded. Excess of tax over book depreciation $ (40.0) $(12.7) $(15.9) The projected benefit obligation and fair value of plan assets Net restructuring spending (13.6) (47.5) (26.3) for the pension plans with projected benefit obligations in excess Tax credit utilization (10.2) (11.5) — of plan assets were $360.0 and $110.1, respectively, as of Other, net (37.0) 16.7 21.5 December 31, 1998, and $311.0 and $98.4, respectively, as $(100.8) $(55.0) $(20.7) of December 31, 1997. The assumed medical cost trend rate used in measuring the The components of deferred tax assets (liabilities) are as follows at postretirement benefit obligation was 4.75% for 1999 and years December 31: thereafter. Changes in this rate can have a significant effect on 1998 1997 amounts reported. The effect of a 1% increase/decrease in the assumed medical cost trend rate would change the accumulated Deferred Taxes — Current: Accrued liabilities $ 73.8 $ 78.8 postretirement benefit obligation by approximately $14.5; annual Restructuring 14.1 27.7 expense would change by approximately $2.3. Other, net 22.5 17.9 Total deferred taxes current 110.4 124.4 8. Income Taxes Deferred Taxes — Long-term: The provision for income taxes consists of the following for the Intangible assets (328.5) (251.6) Property, plant and equipment (251.1) (188.4) years ended December 31: Postretirement benefits 62.6 65.6 Tax loss and tax credit carryforwards 176.9 159.5 1998 1997 1996 Other, net 14.9 54.7 United States $122.6 $ 91.0 $ 67.2 Valuation allowance (122.8) (124.3) International 278.9 270.9 252.4 Total deferred taxes long-term (448.0) (284.5) $401.5 $361.9 $319.6 Net deferred taxes $(337.6) $(160.1)

The components of income before income taxes are as follows The major component of the 1998 and 1997 valuation allowance for the three years ended December 31: relates to tax benefits in certain jurisdictions not expected to

1998 1997 1996 be realized. The increase in deferred taxes — long-term primarily relates to deferred taxes recognized in Brazil subsequent to their United States $ 362.0 $ 271.8 $171.3 International 888.1 830.5 783.3 change from a highly inflationary economy. $1,250.1 $1,102.3 $954.6 Applicable U.S. income and foreign withholding taxes have not been provided on approximately $661 of undistributed earnings of foreign subsidiaries at December 31, 1998. These earnings are The difference between the statutory United States federal currently considered to be permanently invested and are not sub- income tax rate and the Company’s global effective tax rate as ject to such taxes. Determining the tax liability that would arise if reflected in the Consolidated Statements of Income is as follows: these earnings were remitted is not practicable.

Percentage of Income Before Tax 1998 1997 1996

Tax at U.S. statutory rate 35.0% 35.0% 35.0% State income taxes, net of federal benefit .7 .6 .3 Earnings taxed at other than U.S. statutory rate (2.6) (1.8) (1.4) Reversal of valuation allowance (2.7) (1.5) — Other, net 1.7 .5 (.4) Effective tax rate 32.1% 32.8% 33.5%

17 Colgate’s Growing Success Dollars in Millions Except Per Share Amounts

9. Supplemental Income Statement Information Other Accruals 1998 1997 Accrued payroll and employee benefits $312.4 $331.7 Other Expense, Net 1998 1997 1996 Accrued advertising 232.6 170.1 Accrued interest 51.2 49.5 Amortization of intangibles $ 81.7 $ 86.5 $ 91.7 Accrued taxes other than income taxes 72.0 46.7 Earnings from equity investments (5.3) (5.6) (7.8) Restructuring accrual 39.6 79.0 Minority interest 28.1 29.1 33.4 Other 149.4 161.9 Other (43.3) (37.6) (23.5) $857.2 $838.9 $ 61.2 $ 72.4 $ 93.8

Other Liabilities 1998 1997 Interest Expense, Net 1998 1997 1996 Minority interest $230.5 $227.0 Interest incurred $216.8 $241.6 $244.4 Pension and other benefits 398.0 365.1 Interest capitalized (12.3) (10.0) (12.7) Other 108.1 183.7 Interest income (31.6) (48.1) (34.3) $736.6 $775.8 $172.9 $183.5 $197.4 Research and development $166.0 $166.3 $159.7 Maintenance and repairs 109.7 113.6 107.1 11. Fair Value of Financial Instruments Media advertising 592.2 637.0 565.9 The Company utilizes interest rate swap contracts and foreign currency exchange contracts to manage interest rate and foreign currency exposures. (See the Results of Operations — Managing 10. Supplemental Balance Sheet Information Foreign Currency and Interest Rate Exposure for further discus-

Inventories 1998 1997 sion.) In assessing the fair value of financial instruments at December 31, 1998 and 1997,the Company has used available Raw materials and supplies $257.9 $261.0 Work-in-process 32.9 33.5 market information and other valuation methodologies. Some Finished goods 455.2 433.9 judgment is necessarily required in interpreting market data to $746.0 $728.4 develop the estimates of fair value, and, accordingly, the esti- mates are not necessarily indicative of the amounts that the Inventories valued under LIFO amounted to $162.2 and $157.9 Company could realize in a current market exchange. at December 31, 1998 and 1997,respectively. The excess of The carrying amounts of cash and cash equivalents, mar- current cost over LIFO cost at the end of each year was $39.8 and ketable securities, long-term investments and short-term debt $46.7,respectively. The liquidations of LIFO inventory quantities approximated fair value as of December 31, 1998 and 1997. The increased income by $1.3, $0 and $1.4 in 1998, 1997 and estimated fair value of the Company’s remaining financial instru- 1996, respectively. ments at December 31 are summarized as follows:

Property, Plant and Equipment, Net 1998 1997 1998 1997

Land $ 122.6 $ 120.6 Carrying Fair Carrying Fair Buildings 705.0 653.0 Amount Value Amount Value Machinery and equipment 3,299.7 3,024.8 (Liabilities)/Assets 4,127.3 3,798.4 Long-term debt, including Accumulated depreciation (1,538.1) (1,357.4) current portion $ 2,589.2 $ 2,441.0 (including foreign exchange contracts) $(2,582.2) $(2,800.0) $(2,518.6) $(2,665.6) Other liabilities: Goodwill and Other Intangible Assets, Net 1998 1997 Interest rate contracts (2.4) (3.6) (7.1) (18.4) Foreign exchange Goodwill and other intangibles $3,080.8 $3,060.3 contracts (8.7) (13.0) 10.3 9.0 Accumulated amortization (556.7) (475.0) Equity: $2,524.1 $2,585.3 Foreign exchange contracts (to hedge investment in subsidiaries) (2.9) (2.7) 1.4 6.6

As of December 31, 1998 and 1997,the Company had interest rate agreements outstanding with an aggregate notional amount

Colgate’s Growing Success 18 Dollars in Millions Except Per Share Amounts

As of December 31, 1998 and 1997,the Company had interest and the consolidation of administrative operations following the rate agreements outstanding with an aggregate notional amount implementation of SAP and related process changes in Europe of $825.0 and $929.8, respectively, with maturities through 2018. and Asia/Africa. All remaining projects will be completed in 1999. As of December 31, 1998 and 1997,the Company had The financing for remaining cash requirements will come from approximately $411.1 and $657.2,respectively, of outstanding operations. foreign exchange contracts. At December 31, 1998, approxi- A summary of the changes in the restructuring reserve is mately 8% of outstanding foreign exchange contracts served as follows: to hedge net investments in foreign subsidiaries, 15% hedged intercompany loans and 77% hedged third-party debt and other Manufacturing Contractual Workforce Plants Settlements Total firm commitments. The Company is exposed to credit loss in the event of nonper- Original reserve $210.0 $ 204.1 $ 46.4 $ 460.5 1995 activity (4.2) (7.2) (13.5) (24.9) formance by counterparties on interest rate agreements and for- 1996 activity (93.4) (118.6) (20.4) (232.4) eign exchange contracts; however, nonperformance by these 1997 activity (45.0) (48.0) (11.0) (104.0) counterparties is considered remote as it is the Company’s policy Balance at to contract with diversified counterparties that have a long-term December 31, 1997 67.4 30.3 1.5 99.2 1998 activity (37.1) (22.5) — (59.6) debt rating of A or higher. The amount of any such exposure is Balance at generally the unrealized gain on such contracts, which at Decem- December 31, 1998 $ 30.3 $ 7.8 $ 1.5 $ 39.6 ber 31, 1998 was not significant.

12. Restructured Operations In total, the headcount reductions resulting from the restructuring In September 1995, a reserve of $460.5 was established to projects are 4,655. The cumulative headcount reductions as of cover a worldwide restructuring of manufacturing and administra- 1996, 1997 and 1998 were 2,275, 3,133 and 3,986, respec- tive operations. The primary elements of the reserve related to tively. Factory closures and/or reconfigurations will total 25. The employee termination costs and expenses associated with the cumulative factory closures and/or reconfigurations as of 1996, realignment of the Company’s global manufacturing operations, 1997 and 1998 were 14, 20 and 23, respectively. The costs of as well as settlement of contractual obligations. As planned, the completing the restructuring activities to date approximated the restructuring has produced savings that increase pretax earnings original reserve. The headcount and factory totals were increased by over $150 annually. by 513 and 1, respectively, as a result of refinements of original The planned restructuring projects, primarily in North America estimates. and Europe but also affecting Hill’s Pet Nutrition and Colgate loca- Of the restructuring reserve remaining as of December 31, tions in Asia/Africa and certain Latin America locations, are sub- 1998 and 1997,$39.6 and $79.0, respectively, is classified as a stantially completed. The remaining reserve amount of $39.6 current liability, and $0 and $20.2, respectively, as a reduction of primarily covers the reconfiguring of two factories in Asia/Africa fixed assets.

13. Quarterly Financial Data (Unaudited)

First Second Third Fourth Quarter Quarter Quarter Quarter

1998 Net sales $2,159.5 $2,256.5 $2,265.4 $2,290.2 Gross profit 1,123.5 1,172.6 1,192.6 1,192.6 Net income 196.0 203.5 214.9 234.2 Earnings per common share: Basic .65 .67 .71 .78 Diluted .60 .62 .66 .73 1997 Net sales $2,147.1 $2,300.9 $2,297.2 $2,311.5 Gross profit 1,080.6 1,168.1 1,166.7 1,179.8 Net income 169.6 175.8 188.6 206.4 Earnings per common share: Basic .56 .58 .62 .68 Diluted .52 .54 .58 .63

19 Colgate’s Growing Success Board of Directors (Letters indicate positions in photo)

C Reuben Mark, 60 A Ronald E. Ferguson, 57 National Semiconductor, F John P. Kendall, 70 D Delano E. Lewis, 60 Audit Committee Chairman of the Board Chairman and Chief 1995-1996, and Senior Officer, Faneuil Hall President and Chief Ronald E. Ferguson, Chair Jill K. Conway Vice President at IBM. and Chief Executive Executive Officer of Associates, Inc., a Executive Officer of Ellen M. Hancock Officer of Colgate- General Re Corporation Elected director in 1988. private investment National Public Radio, John P. Kendall Palmolive Company. since 1987. Mr. company, since 1973. 1993-1998. Mr. Lewis Howard B. Wentz, Jr. Mr. Mark joined Colgate Ferguson has been with G David W. Johnson, 66 Mr. Kendall is a former was President and Chief Committee on Directors in 1963 and held a General Re since 1969. Chairman of Campbell Chairman of The Kendall Executive Officer of Delano E. Lewis, Chair series of significant Elected director in 1987. Soup Company since Company. He joined Chesapeake & Potomac Jill K. Conway positions in the United 1993. Mr. Johnson was that company in 1956 Telephone Company from David W. Johnson John P. Kendall States and abroad E Ellen M. Hancock, 55 Campbell President and and held a series of 1988 to 1993, having Howard B. Wentz, Jr. before being elected President and Chief Chief Executive Officer, significant positions. joined that company in Finance Committee CEO in 1984. Elected Executive Officer, Exodus 1990-1997. From 1987 Elected director in 1972. 1973, and held positions Howard B. Wentz, Jr., Chair director in 1983. Communications, Inc. to 1990, he served as of increasing responsi- Ronald E. Ferguson Mrs. Hancock previously Chairman and Chief I Richard J. Kogan, 57 bility. Elected director Ellen M. Hancock H Jill K. Conway, 64 was Executive Vice Executive Officer of Chairman and Chief in 1991. John P. Kendall Richard J. Kogan Gerber Products Visiting Scholar, Program President of Research Executive Officer Reuben Mark in Science, Technology and Development and Company. Elected of Schering-Plough B Howard B. Wentz, Jr., 69 Personnel and director in 1991. and Society at Chief Technology Officer Corporation since 1998. Chairman of Tambrands, Organization Committee Massachusetts Institute at Apple Computer Inc., Mr. Kogan joined Inc., 1993-1996. Mr. Jill K. Conway, Chair of Technology since 1996-1997, Executive Schering-Plough as Wentz was Chairman of Ronald E. Ferguson 1985. Mrs. Conway Vice President and Chief Executive Vice President, ESSTAR Incorporated, David W. Johnson John P. Kendall was President of Smith Operating Officer at Pharmaceutical Opera- 1989-1995, and Delano E. Lewis College from 1975 to tions, in 1982 and then Chairman, President and 1985. Elected director became President and Chief Executive Officer of in 1984. Chief Operating Officer of Amstar Company, 1983- that company in 1986 1989. Elected director and President and Chief in 1982. Executive Officer in 1996. Elected director in 1996. Your Management Team

Corporate Officers David A. Metzler, 56 Andrew D. Hendry, 51 Peter D. McLeod Hector I. Erezuma James Norfleet Executive Vice President, Senior Vice President, Vice President, VP-International Taxes VP-Oral Care Product 60 Reuben Mark, Chief of Operations, General Counsel Manufacturing Development Chairman of the Board and James E. Farrell, Jr. High Growth Markets and Secretary Engineering Technology Chief Executive Officer VP-Assistant Robert C. Pierce Mr. Metzler joined Colgate Joined Colgate in 1991 John H. Tietjen General Counsel VP-Research and See biographical in 1965. Before being from Unisys, where he was Vice President Development information above. Edward Filusch named to his current Vice President and General Global Business VP-Assistant Treasurer Personal Care William S. Shanahan, 58 position in 1997, he was Counsel. A graduate of Development Hans L. Pohlschroeder President and Chief President of Colgate-Europe Georgetown University and Abdul Gaffar Michael S. Roskothen VP-Assistant Treasurer Operating Officer VP-Advanced Technology and previously President NYU Law School, Mr. Hendry Retiring President Oral Care David I. Richardson Mr. Shanahan joined of Colgate-Latin America. has also been a corporate Global Oral Care VP-Product Safety Colgate in 1965 and held Earlier, he had responsi- attorney at the Battle & Nina Gillman Barrie M. Spelling Regulatory and a series of important bilities for operations Fowler law firm in New VP-Assistant President Information Technology positions in the United in Canada, South Pacific, York City and at Reynolds General Counsel Africa and India. Metals Company. Global Oral Care States and abroad. These Stefan S. Gorkin Grace E. Richardson include Vice President- Stephen C. Patrick, 49 Robert J. Joy Michele C. Mayes VP-Global Labor Relations VP-Global Consumer Affairs General Manager for the Chief Financial Officer Vice President Vice President Stuart A. Hulke Clarence Robbins Western Hemisphere, and Global Human Resources Deputy General Counsel Joined Colgate in 1982 VP-MET-Category VP-Technology, Business Group Vice President for International and Corporate after having been a Manager Dennis J. Hickey Engineering Simplification, Surfactants Europe/Africa, Colgate-U.S. Assistant Secretary at Price Waterhouse. Vice President and and other countries. He John J. Huston Jill H. Rothman Before being named CFO Corporate Controller James Serafino VP-Global Compensation was elected Chief Operating VP-Office of the Chairman in 1996, Mr. Patrick held Vice President Officer in 1989 and Ian M. Cook Reuven M. Sacher a series of key financial Deputy General Counsel Jules P. Kaufman President in 1992. President VP-Research and positions, including Vice Technology and Marketing VP-Assistant General Colgate-North America Development, Oral Care Lois D. Juliber, 50 President and Corporate Assistant Secretary Counsel Michael J. Tangney Executive Vice President, Controller and Vice Leo Laitem Richard Theiler President Global Executives Chief of Operations, President-Finance for VP-Research and VP-Research and Colgate-Latin America Emilio Alvarez-Recio Developed Markets Colgate-Latin America. Development, Household Development, Fabric Care VP-Global Advertising Ms. Juliber joined Colgate John T. Reid, 58 Javier G. Teruel Surface Care Bina H. Thompson President Keith W. Bates VP-Investor Relations in 1988 from General Chief Technological Officer Robert R. Martin Foods, where she was Vice Colgate-Europe VP-MET, PSC 2000 Joined Colgate in 1982 as VP-Compliance 2000 Scott E. Thompson President. Before being Project Management Vice President of Strategic Robert C. Wheeler VP-Associate General promoted to her current Ronald T. Martin Planning from Pfizer Chief Executive Officer Charles W. Beck Counsel, Trademarks position in 1997, she had VP-Global Employee Corporation, where he Hill’s Pet Nutrition, Inc. VP-Global Materials, been President of the Far Relations and Staffing Kathleen A. Thornhill worked on that company’s Logistics and Sourcing East/Canada division, Chief Steven R. Belasco Business Practices VP-Global Business Insights strategic plan. Before being Vice President Robert E. Blanchard and Consumer Research Technological Officer and Francis A. Morelli named to his current Taxation and Real Estate VP-General Manager, President of Colgate-North VP-Information Technology position in 1997, Dr. Reid Global Toothbrush Division Heiko Tietke America. Brian J. Heidtke had also served as General and Customer Service VP-Global Business Vice President, Finance Antonio Caro Development, Personal Care Manager of Colgate-Greece, Robert A. Murray and Corporate Treasurer VP-Worldwide Sales Vice President and General VP-Corporate Edmund D. Toben Manager of Colgate-United Edward C. Davis Communications VP-Global Kingdom and Vice President VP-Budgets and Planning Information Technology of the South Pacific region. Herbert L. Davis VP-Business Simplification-Quality

19 Colgate’s Growing Success Dollars in Millions Except Per Share Amounts

14. Market and Dividend Information (Unaudited) common stock is CL. Dividends on the common stock have been The Company’s common stock and $4.25 Preferred Stock are paid every year since 1895, and the amount of dividends paid per listed on the New York Stock Exchange. The trading symbol for share has increased for 36 consecutive years.

Common Stock $4.25 Preferred Stock

Market Price 1998 1997 1998 1997

Quarter Ended High Low High Low High Low High Low

March 31 $87.81 $67.88 $56.88 $45.44 $79.50 $72.50 $72.50 $67.00 June 30 91.44 82.44 66.50 49.75 81.00 76.50 73.00 70.50 September 30 96.94 65.56 77.13 61.81 87.00 80.50 74.50 68.94 December 31 94.75 68.00 74.50 62.25 88.00 85.00 78.00 69.50 Closing Price $92.88 $73.50 $88.00 $76.50

Dividends Paid Per Share

Quarter Ended 1998 1997 1998 1997

March 31 $ .275 $ .235 $1.0625 $1.0625 June 30 .275 .275 1.0625 1.0625 September 30 .275 .275 1.0625 1.0625 December 31 .275 .275 1.0625 1.0625 Total $1.10 $1.06 $4.25 $4.25

15. Earnings Per Share

For the Year Ended 1998 For the Year Ended 1997 For the Year Ended 1996

Income Shares Per Share Income Shares Per Share Income Shares Per Share

Net income $848.6 $740.4 $635.0 Preferred dividends (20.9) (21.1) (21.4) Basic EPS 827.7 295.0 $2.81 719.3 295.3 $2.44 613.6 293.3 $2.09 Stock options 6.8 6.9 5.1 ESOP conversion 18.4 22.4 17.9 22.9 16.1 23.3 Diluted EPS $846.1 324.2 $2.61 $737.2 325.1 $2.27 $629.7 321.7 $1.96

16. Commitments and Contingencies On September 8, 1998, one of the Company’s Brazilian sub- Minimum rental commitments under noncancellable operating sidiaries, Kolynos do Brasil Ltda. (“Kolynos”), received notice of leases, primarily for office and warehouse facilities, are $67.3 an administrative proceeding from the Central Bank of Brazil. The in 1999, $63.5 in 2000, $56.2 in 2001, $51.0 in 2002, $48.9 notice primarily takes issue with certain filings made with the Cen- in 2003 and $122.6 thereafter. Rental expense amounted to tral Bank in connection with financing arrangements related to the $102.7 in 1998, $94.4 in 1997 and $93.3 in 1996. Contingent acquisition of Kolynos in January 1995. The Central Bank seeks rentals, sublease income and capital leases, which are included to impose fines prescribed by statute, and it, in no way, chal- in fixed assets, are not significant. lenges or seeks to unwind the acquisition. Management believes, The Company has various contractual commitments to pur- based on the opinion of its Brazilian legal counsel, that the filings chase raw materials, products and services totaling $60.6 that challenged by the Central Bank fully complied with Brazilian law expire through 2001. and that the issues raised in the notice are without merit. The Company is a party to various superfund and other envi- While it is possible that the Company’s cash flows and results ronmental matters and is contingently liable with respect to law- of operations in particular quarterly or annual periods could be suits, taxes and other matters arising out of the normal course affected by the one-time impacts of the resolution of the above of business. Management proactively reviews and manages its contingencies, it is the opinion of management that the ultimate exposure to, and the impact of, environmental matters and other disposition of these matters, to the extent not previously provided contingencies. for, will not have a material impact on the Company’s financial condition or ongoing cash flows and results of operations.

Colgate’sCOLGATE Growing’S GROWING Success 20 Visiting Global Plant in Morristown, New Jersey Following a review of the business at a board meeting held at Colgate’s personal care factory in Morristown, NJ, Colgate directors toured the state-of-the- art facility. As they viewed the automated equipment, they wore “CP Morristown” caps, in compliance with good manufacturing prac- tices to assure product purity.

AB CDE FG H I

Joseph A. Uzzolina Peter C. Chase Morgan J. O’Brien Karen Guerra Malcolm Stokoe Hill’s Pet Nutrition VP-Global Business VP-Marketing VP-Financial Director VP-General Manager VP-General Manager P. Dorset Sutton Development, Household Latin America Central Europe and Russia United Kingdom & Ireland Caricom Region President and Chief Surface Care Alec de Guillenchmidt Leonard D. Smith Luis Gutierrez Daniel Vettoretti Operating Officer VP-Benelux Operations VP-Finance VP-General Manager VP-General Manager Robert T. Valleau Richard F. Hawkins VP-Global Business and ECR-Europe Africa/Middle East Central America Poland/Hungary/Czech President Development Republic/Baltic States Coloman de Hegedus Karel van Brink William A. Houlzet Hill’s-International Personal Cleaning President VP-Managing Director VP-General Manager Paul Witmond and Hair Care Joseph A. Douglas Africa/Middle East New Geographies France VP-General Manager Senior Vice President and Acquisitions Dominican Republic J. Nicholas Vinke Dale Dvorak N. Jay Jayaraman Global Product VP-General Manager Central Europe and Russia VP-Manufacturing VP-General Manager Seng Aun Yeoh Supply/MET/Manufacturing Colgate Oral Latin America Francis M. Williamson India VP-General Manager Effectiveness Pharmaceuticals VP-Finance and Strategic Malaysia Stephen J. Fogarty Scott W. Jeffrey, Jr. Virginia M. Dotzauer Planning Anthony R. Volpe VP-Marketing VP-General Manager Colgate-U.S. VP-General Manager VP-Clinical Dental Research Asia Latin America Colombia Hill’s-Domestic Diets John Bourne Gregory Woodson Jill Garrity Johannes Brouwer Seamus E. McBride VP-Financial Business James W. Sparks VP-Global Business VP-Marketing VP-Managing Director VP-General Manager Development VP-Human Resources Development Europe Turkiye Italy North America Fabric Care Richard J. Wienckowski James Gerchow Andreas Brouzos Graeme B. Murray Richard J. Coté VP-Finance Douglas R. Wright VP-Manufacturing VP-General Manager VP-General Manager VP-Finance Chief Financial Officer VP-Environmental Affairs, Africa/Middle East Greece Canada Occupational Health James S. Figura Nigel B. Burton and Safety Walter H. Golembeski Chris E. Pedersen VP-Consumer Research VP-Manufacturing VP-General Manager VP-General Manager John E. Zoog Spain David R. Groener and Technology Nordic Group VP-Manufacturing and VP-Human Resources Asia Pacific David Conn Roger Pratt Product Supply Chain Services VP-General Manager Jean-Mathieu Hellich VP-General Manager North America Operating VP-Legal Director-Europe South Africa Brazil Jack Haber Executives Associate General Counsel Graeme Dalziel Friedrich Reinshagen VP-General Manager VP-General Manager Colgate-International Richard Mener VP-General Manager Oral Care VP-General Manager Portugal Germanic Countries S. Peter Dam Tarek Hallaba Global Export/Middle East President Steven E. Elliott Derrick Samuel VP-Marketing VP-General Manager Asia Pacific Franck Moison VP-General Manager Thailand Suzan Harrison David P. Bencze President South Pacific Region VP-General Manager Central Europe and Russia VP-Manufacturing Guillermo Fernandez Raffy Santos Household Surface Care VP-President and Europe Jean-Marc Navez VP-General Manager General Manager Sheila Hopkins Philip A. Berry VP-Finance and Hawley & Hazel Taiwan VP-General Manager Strategic Planning Mexico VP-Human Resources James H. Shoultz Personal Care Europe Asia Pacific Chester Fong VP-General Manager VP-General Manager Robert F. Maruska Jose-Maria Castro Venezuela Greater China VP-Financial Planning VP-Finance and Strategic Planning Robert Galan Louis Mignone VP-Sales Europe VP-General Manager Philippines

Colgate’s Growing Success 20 Shareholder Dividend Reinvestment Plan Eleven-Year Colgate offers an automatic Dividend (1) Information Reinvestment Plan for common and $4.25 Financial Summary preferred shareholders and a voluntary cash feature. Any brokers’ commissions or service charges for stock purchases under the Plan are paid by Colgate-Palmolive. Shareholders Dollars In Millions Except Per Share Amounts Corporate Offices can sign up for this Plan by contacting our Colgate-Palmolive Company transfer agent, below left. Continuing Operations 300 Park Avenue Net sales New York, New York 10022-7499 Independent Public Accountants Results of operations: (212) 310-2000 Arthur Andersen LLP Net income Per share, basic Investor Relations/Reports Annual Meeting on Wednesday: Per share, diluted Note Change Copies of annual or interim reports, product Colgate shareholders are invited to attend our brochures, Form 10-K and other publications Depreciation and amortization expense annual meeting. It will be Wednesday, May 5, are available from the Investor Relations 1999 at 10:00 a.m. in the Broadway Ballroom Department: Financial Position of the Marriott Marquis Hotel, Sixth Floor, Broad- by mail directed to the corporate address Current ratio way at 45th Street, New York, NY. Even if you by e-mail, [email protected] Property, plant and equipment, net plan to attend the meeting, please sign and by calling 1-800-850-2654 or by calling Capital expenditures return your proxy promptly. Investor Relations at (212) 310-3207 Total assets Individual investors with other requests: Long-term debt Stock Exchanges please write Investor Relations at the The common stock of Colgate-Palmolive Com- Shareholders’ equity pany is listed and traded on The New York Stock corporate address or call (212) 310-2575 Exchange under the symbol CL and on other Institutional investors: Share and Other world exchanges including those in call Bina Thompson at (212) 310-3072 Book value per common share Amsterdam, Frankfurt, London, Paris Cash dividends declared and paid per Other Reports and Zurich. common share You can obtain a copy of Colgate’s Environmen- tal Policy Statement, Code of Conduct, Advertis- Closing price Financial Information at Internet Site Number of common shares outstanding http://www.colgate.com and by ing Placement Policy Statement, Product (in millions) 1-800-850-2654 Safety Research Policy or our 1998 Report of Financial results, dividend news and other infor- Laboratory Research with Animals by writing to Number of shareholders of record: mation are available on Colgate’s site on the Consumer Affairs at Colgate-Palmolive. $4.25 Preferred Internet, at the address above. Common Corporate Responsibility Colgate also offers earnings information, the Average number of employees Colgate-Palmolive does business in over 200 stock price, dividend news and other corporate countries and territories worldwide, affecting announcements toll-free at 1-800-850-2654. the lives of a highly diverse population of The information can be read to the caller and employees, consumers, shareholders, business can also be received by mail or fax. (1) All share and per share amounts have been associates and friends. We are committed to restated to reflect both the 1997 and the 1991 Transfer Agent and Registrar the highest standard of ethics, fairness and two-for-one stock splits. (2) Our transfer agent can assist you with a variety humanity in all our activities and operations. All Income in 1995 includes a net provision for restructured operations of $369.2. (Excluding of shareholder services, including change of employees are guided by a worldwide Code of Conduct, which sets forth Colgate policies on the charge, earnings per share would have been address, transfer of stock to another person, $1.79, basic and $1.67, diluted.) questions about dividend checks or Colgate’s important issues such as nondiscriminatory (3) Income in 1994 includes a one-time charge of Dividend Reinvestment Plan. employment, involvement in community and $5.2 for the sale of a non-core business, educational programs, care for the environment, Princess House. employee safety, and our relationship with con- (4) Income in 1993 includes a one-time impact of Attn: Colgate-Palmolive Company sumers, shareholders and government. adopting new mandated accounting standards, First Chicago Trust Company of New York, effective in the first quarter of 1993, of $358.2. a division of EquiServe Environmental Policy (Excluding this charge, earnings per share would have been $1.69, basic and $1.58, diluted.) P.O. Box 2500 Colgate-Palmolive is committed to the protec- (5) Income in 1991 includes a net provision for Jersey City, NJ 07303-2500 tion of the environment everywhere. Our commit- TOLL-FREE: 1-800-756-8700 restructured operations of $243.0. (Excluding this ment is an integral part of Colgate’s mission to charge, earnings per share would have been FAX: (201) 222-4842 become the best truly global consumer products $1.28, basic and $1.20, diluted.) e-mail: [email protected] company. We continue to work on developing (6) Income in 1988 includes Hill’s service agreement Internet address: http://www.equiserve.com innovative environmental solutions in all areas renegotiation net charge of $42.0. (Excluding this charge, earnings per share would have been $.71, Hearing Impaired: TDD: (201) 222-4955 of our business around the world. The health basic and $.70, diluted.) and safety of our customers, our people and the (7) Due to timing differences, 1988 includes three divi- Registered shareholders can view their communities in which we live and operate is dend declarations totaling $.28 per share and four accounts on the Internet by calling toll-free paramount in all that we do. Colgate-Palmolive’s payments totaling $.37 per share while all other 1-877-843-9327 to request a password and concern has been translated into many varied years include four dividend declarations. sign-on ID be sent to them. programs dealing with employee safety and with our products, packaging, facilities and business decisions. Extensive worker training programs, a comprehensive audit program, and projects such as concentrated cleaners and detergents, refill packages, recycled and recyclable bottles and packaging materials are all part of our com- mitment behind this important endeavor.

21 Colgate’s Growing Success 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988

$8,971.6 $9,056.7 $8,749.0 $8,358.2(2) $7,587.9 $7,141.3 $7,007.2 $6,060.3 $5,691.3 $5,038.8 $4,734.3

848.6 740.4 635.0 172.0(2) 580.2(3) 189.9(4) 477.0 124.9(5) 321.0 280.0 152.7(6) 2.81 2.44 2.09 .52(2) 1.91(3) .54(4) 1.46 .38(5) 1.14 .99 .56(6) 2.61 2.27 1.96 .51(2) 1.78(3) .53(4) 1.37 .38(5) 1.06 .95 .55(6) 330.3 319.9 316.3 300.3 235.1 209.6 192.5 146.2 126.2 97.0 82.0

1.1 1.1 1.2 1.3 1.4 1.5 1.5 1.5 1.4 1.9 1.7 2,589.2 2,441.0 2,428.9 2,155.2 1,988.1 1,766.3 1,596.8 1,394.9 1,362.4 1,105.4 1,021.6 389.6 478.5 459.0 431.8 400.8 364.3 318.5 260.7 296.8 210.0 238.7 7,685.2 7,538.7 7,901.5 7,642.3 6,142.4 5,761.2 5,434.1 4,510.6 4,157.9 3,536.5 3,217.6 2,300.6 2,340.3 2,786.8 2,992.0 1,751.5 1,532.4 946.5 850.8 1,068.4 1,059.5 674.3 2,085.6 2,178.6 2,034.1 1,679.8 1,822.9 1,875.0 2,619.8 1,866.3 1,363.6 1,123.2 1,150.6

7.05 7.30 6.84 5.67 6.23 6.20 8.10 6.27 5.06 4.20 4.12

1.10 1.06 .94 .88 .77 .67 .58 .51 .45 .39 .37(7) 92.88 73.50 46.13 35.13 31.69 31.19 27.88 24.44 18.44 15.88 11.75

292.7 295.4 294.3 291.7 288.8 298.5 320.5 294.7 266.4 264.4 276.3

296 320 350 380 400 450 470 460 500 500 550 45,800 46,800 45,500 46,600 44,100 40,300 36,800 34,100 32,000 32,400 33,200 38,300 37,800 37,900 38,400 32,800 28,000 28,800 24,900 24,800 24,100 24,700

Promoting New Toothbrushes to Consumers Product sampling and eye-level displays win new customers for Colgate toothbrushes. Top left, new Colgate toothbrushes across the world for all price points and ages, from youngsters on up. Below left, the new Colgate Sensation toothbrush got off to a fast start in Venezuela in 1998.

E Printed entirely on recycled paper. © 1999 Colgate-Palmolive Company Design by Robert Webster Inc. Major photography by Richard Alcorn Cover photo by Richard Lord Other photos by Tom Ferraro, John Abbott and Richard Lord Printing by Acme Printing Company Typography by Grid Typographic Services, Inc.

Colgate’s Growing Success 22